WRAPUP 2-CFTC's Gensler sees room to improve US swaps bills

* Gensler urges narrow definition of exempt companies

* Looking to expand OTC derivatives to be traded, cleared
(Recasts with OTC derivatives, adds quotes, House committee)

By Jonathan Spicer

CHICAGO, Oct 21 (Reuters) - The U.S. commodities
regulator's chief said he would work with lawmakers to toughen
new derivatives rules recently approved by two congressional
groups, signaling he wants more products run through exchanges
and clearinghouses, and few companies exempted from clearing.

Gary Gensler, chairman of the Commodity Futures Trading
Commission, on Wednesday also repeated the need to limit
excessive speculation in energy markets to protect the
economy.

Public debate on tightening exchange position limits could
begin as soon as late November, another CFTC commissioner
said.

Meanwhile, lawmakers in Washington took another step toward
regulating the $450 trillion over-the-counter derivatives
market, widely blamed for amplifying the financial crisis. A
second House committee voted to require many swaps to move onto
regulated exchanges, but with exemptions for end-users such as
airlines and utilities. [ID:nN21505565] [ID:nN21374129]

Any clearing exemptions for end-users, such as airlines and
manufacturers, should "be very narrowly defined to include only
nonfinancial entities that use swaps as an incidental part of
their business to hedge actual commercial risks," Gensler told
a Futures Industry Association conference in Chicago.

He said hedge funds, financial firms or other investment
funds should not be exempted from a clearing requirement --
which is intended to shed more light on the private OTC markets
and protect participants from the default of a major player.

"We need to protect the public, that large swap dealers and
entities that are holding themselves out to the public dealing
in these complex derivatives are registering and regulated as
swap dealers -- that we cover the next AIG so to speak,"
Gensler told reporters, alluding to the near collapse last year
of U.S. insurer American International Group (AIG.N).

Nonfinancial companies say it would be a burden to go
through clearing and have to post cash reserves. They say it is
common to pledge noncash assets as collateral.

U.S. and European lawmakers moved in the last seven days on
new derivatives rules meant to avoid a repeat of Wall
Street-inspired economic meltdown. While the European
Commission unveiled its plans on Tuesday, the U.S. House
Financial Services Committee passed a bill last week.
[ID:nLK519845]

"We look forward to working with both committees and the
rest of Congress to build upon this effort," Gensler said of
the two U.S. bills, in an interview with Reuters TV, adding he
will work with Congress to expand the number of transactions
run through exchanges or clearinghouses.

The two U.S. proposals would require many OTC swaps run
through a central clearinghouse, but, in general, would not
require as many as the original Obama administration proposal.

The versions will be merged in a wider package of financial
rule reforms for a House vote expected early next month.

DRIVE FOR LIMTS

Gensler also defended his push to impose position limits on
energy traders. The CFTC faces intense pressure from Congress
to tighten limits on the size of positions traders take in
markets after crude oil futures hit a record near $150 a barrel
last year and gas prices topped $4 a gallon at the pump.

"Excessive speculation in terms of concentrated large
positions can -- particularly in stormy times, and we did have
a crisis last year -- (be) very tricky and treacherous for the
economy," Gensler told the conference.

The proposed regulations target crude oil and energy
markets, but would also affect everything from trading in
currencies, securities -- even corn and wheat.

The CFTC could call for public comments on new position
limit rules by the end of November, CFTC Commissioner Bart
Chilton said on the sidelines of an energy conference in
Houston on Wednesday. [ID:nN21499540]

In some commodities, such as agricultural products, the
CFTC puts position limits on how many contracts an investor can
hold. In energy markets, the limits are set by the exchanges,
like CME Group (CME.O) and IntercontinentalExchange (ICE.N).

"We're trying to find the right balance," Gensler said.

Traders and some exchanges warn that limits could reduce
market liquidity and actually drive prices higher, or shift
trading to overseas markets with looser rules. Large investors
are preparing by rebalancing their portfolios, often sharply
reducing positions that fall under U.S. regulation.

"There is already a lot of evidence of people migrating to
these alternative markets," said Craig Donohue, chief executive
of CME Group, the world's largest derivatives market operator.
For more coverage, please see:

* CFTC taking aim at commodities speculation [ID:nCFTCREG]

* Global changes in financial regulation [ID:nFINREG]
(Additional writing by Lisa Shumaker; Additional reporting by
Doris Frankel in Chicago, Christopher Doering and Charles
Abbott in Washington, Erwin Seba in Houston; Editing by Gary
Hill)