BOCA RATON, Florida (Reuters) - The head of the top U.S. futures regulator chided Wall Street on Thursday for resisting calls to make over-the-counter derivatives markets more transparent, arguing major reforms are required after the recent financial crisis.
Laying out his case for more oversight of the unregulated market he estimates is worth $300 trillion -- arguments he has made repeatedly as lawmakers hash out reforms -- Gary Gensler took financial firms to task for putting their shareholders ahead of the public interest.
“Wall Street ... has benefited from opacity and inefficiencies in the over-the-counter derivatives market, a market dominated by a handful of dealers in this country,” said the chairman of the Commodity Futures Trading Commission.
“But in this particular market and at this time in our history, we need markets that work for the American public,” he said in remarks prepared for the Futures Industry Association.
The association, which represents futures dealers, investors and exchanges, is holding its annual conference as the U.S. Senate struggles to craft financial regulatory reforms, including new rules for OTC derivatives.
The House version of the bill requires standardized derivatives to trade on exchanges or other platforms and move through central clearing houses, which require margins to guarantee trades.
Bipartisan Senate talks on the broad package of reforms broke down on Thursday, but Gensler told reporters he believes there is consensus across the political spectrum for the derivatives portion of the bill.
Tapping populist anger against banks for the financial woes gripping America, Gensler -- a former Goldman Sachs executive -- said big traders need to loosen their grip on the “information advantage” provided by the OTC markets.
“Let there be no mistake: Wall Street has not been enthusiastic about this reform,” Gensler said, noting dealers do not want derivatives to trade on exchanges and are seeking broad exemptions from mandatory clearing requirements.
“Wall Street might express partial support for a clearing requirement, but when it comes to the trading requirement, they appear rather allergic,” he said.
Lawmakers have indicated they are willing to exempt corporate end-users from the expense clearing requirements -- companies like utilities, airlines, manufacturers and oil producers that use derivatives to hedge their risks.
Gensler estimates those users account for about 9 percent of the OTC derivatives market, but has argued large insurance companies, hedge funds, mortgage financing companies, leasing companies and other firms will try to exploit the loophole.
“Wall Street appears to be aligning themselves with corporate end-users in an effort to exempt customer transactions from central clearing,” he said, noting a broader exemption could leave 60 percent of derivatives out of the scope of regulators.
Writing by Roberta Rampton and Christopher Doering in Washington; editing by Julie Ingwersen