CFTC head urges controls on derivatives, hedge funds

CHICAGO (Reuters) - The new chairman of the Commodity Futures Trading Commission on Wednesday urged more comprehensive regulation of derivatives trading and tighter controls on hedge funds.

"I believe that we must mandate the use of central clearing and exchange venues for all standardized derivatives," CFTC's Gary Gensler said in remarks to the Managed Funds Association meeting in Chicago.

Gensler was sworn in as CFTC chairman in May, coming on board at a time when the Obama administration is in the thick of a major regulatory overhaul of the U.S. financial system.

"Market transparency and efficiency would be further improved by requiring the standardized part of the OTC markets onto fully regulated exchanges and fully regulated transparent electronic trading systems," he said.

Gensler said CFTC should have the ability to impose position limits on anyone trading OTC derivatives "that perform or affect a significant price discovery function with respect to regulated markets that the CFTC oversees."

In overhauling regulations, Gensler urged closing gaps that could emerge between the treatment of standardized and customized derivatives products.

"Customized derivatives, though allowed, would be subject to capital, margin, business conduct and reporting standards," he said.

Higher capital and margin requirements would also be justified for customized derivatives because of their less liquid, less transparent nature, Gensler added.