Gary Gensler, the nominee to chair the US Commodity Futures Trading Commission, has pledged to bolster the agency's enforcement division and take more steps to prevent excessive speculation if confirmed by the US Senate.
There had previously been some uncertainty over his nomination after Senate Agriculture Chairman Tom Harkin, D-Iowa, and others raised concerns about Gensler's past involvement as a Treasury official in talks over a 2000 law which deregulated swaps. The likelihood of his confirmation seems more certain now, however, after Gensler received key support from Sen. Dianne Feinstein, D-Calif., the night before his hearing.
In addition to strengthening enforcement and enhancing oversight to prevent excessive speculation, Gensler also called Wednesday for the development of a regulatory regime for over-the-counter derivatives and said he would work with Congress and other regulators to develop "system-wide reform" that will work in a global marketplace.
"The current economic crisis clearly has shown that our financial and regulatory systems have failed the American people terribly," Gensler said. "Those of us who have spent our professional lives around markets have to approach the current crisis with some humility following these broad failures."
Gensler, a former assistant secretary and undersecretary for domestic finance at the US Treasury, has worked hard to ease worries expressed by some senators about his past involvement in negotiations over the Commodity Futures Modernization Act of 2000.
He has provided detailed responses on questionnaires sent to him by several senators asking about his regulatory philosophy and his views on speculative trading in the commodity markets. Feinstein, a vocal critic of the CFTC's past regulatory performance, was among the senators who sent Gensler a lengthy list of questions.
In his answers, Gensler has said he believes the rapid growth in commodity index funds was a contributing factor in the price run-up in energy and agricultural commodities last year. He also has said that he participated in some of the negotiations over the controversial 2000 bill while at Treasury, but was recused for parts of the discussion in 1998.
Gensler reiterated to the committee Wednesday his commitment to giving the speculation debate a fresh look. "A transparent and consistent playing field for all physical commodity futures should be the foundation of our regulations," he said. "Position limits must be applied consistently to all markets and trading platforms and exemptions to them must be limited and well-defined."
Gensler also said he supports mandatory clearing for standardized over-the-counter derivatives. Gensler added that he thinks regulations must also be developed for customized contracts that do not easily lend themselves to clearing.
"Derivative dealers need direct regulation, including capital, business conduct and reporting rules," he said.
"Credit-fault swaps, given their unique nature, also will require further regulation."
Gensler did not bring up the Commodity Futures Modernization Act by name in his opening remarks.
He did, however, seem to hint at it, noting that he has learned from the past.
"We have learned that there is no substitute for strong independent regulation and that transparency and accountability are essential throughout the system," he said.
"Those are the lessons that I draw from what has dramatically transpired over the past decade. If confirmed by the Senate, I pledge to this committee that I will not forget these lessons."
-By Sarah N. Lynch, Dow Jones Newswires
