(Archived Content)
Robert E. Rubin, Secretary
Department of the Treasury
Alan Greenspan, Chairman
Board of Governors of the Federal Reserve System
Arthur Levitt, Chairman
Securities and Exchange Commission
June 5, 1998
The Honorable Newt Gingrich
Speaker
U.S. House of Representatives
Washington, DC 20515
Dear Mr. Speaker:
On May 7, the Commodity Futures Trading Commission (CFTC) issued a concept release on over-the-counter derivatives. The same day, we, the undersigned, issued a statement expressing our grave concern about this action and its possible consequences.
We believe that an immediate but temporary legislative response is required in order to provide time for the Congress, the regulatory community, and other interested parties to consider the important public policy issues involved. We also believe that such legislation is necessary in order to prevent a possible perception that the U.S. regulatory system generates an uncomfortable degree of legal uncertainty and to avoid potentially troubling litigation that could increase this uncertainty. U.S. firms are leaders in the business. Uncertainty can result in a silent run of this business from the U.S. to other financial centers.
We believe that there are serious questions concerning the CFTC's jurisdiction in this area, and that it was not Congress's intent when it enacted the Future Trading Practices Act of 1992 to allow the CFTC to impose unilaterally a comprehensive regulatory scheme for the OTC derivatives market.
Nonetheless, the issues the CFTC has raised are important and should be carefully studied. Consequently, our legislative proposal would require the President's Working Group on Financial Markets to study the OTC derivatives market and make such recommendations as it believes are appropriate to Congress.
The enclosed legislative proposal is targeted to deal with the immediate problems, while giving Congress time to consider fully the issues raised. The legislative proposal would maintain the status quo by temporarily imposing a moratorium on the CFTC's ability to restrict its current safe harbors for swaps and hybrid instruments. It also provides legal certainty to derivatives based on non-exempt securities.
The OTC derivatives market is a large and important global market, which crosses jurisdictional lines among regulators in this country. It is the type of issue that the President's Working Group was designed to address. Our legislative proposal seeks to protect this market from unnecessary, and potentially damaging, legal uncertainty while important issues relating to this market can be studied by the agencies represented on the Working Group and by others. It does not presuppose any particular set of answers. We urge the prompt consideration by Congress of our proposal.
We are sending a similar letter to the President of the Senate.
Sincerely,
Robert E. Rubin, Secretary
Department of the Treasury
Alan Greenspan, Chairman
Board of the Governors of the Federal
Reserve System
Arthur Levitt, Chairman
Securities and Exchange Commission
Enclosure: proposed legislation & section-by-section analysis