Statements On Introduced Bills And Joint Resolutions

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By Mr. HARKIN:

S. 272. A bill to amend the Commodity Exchange Act to ensure that all agreements, contracts, and transactions with respect to commodities are carried out on a regulated exchange, and for other purposes; to the Committee on Agriculture, Nutrition, and Forestry.

Mr. HARKIN. Mr. President, today, I am reintroducing legislation--the Derivatives Trading Integrity Act--which calls for establishing stronger standards of openness, transparency and integrity in the trading of financial swaps and other over-the-counter derivative contracts as a critical step toward rebuilding and restoring confidence in the financial system. Over the years, the Commodity Futures Trading Commission and laws enacted by Congress have allowed instruments that are in form and function futures contracts to be privately negotiated without the safeguards provided through trading on exchanges regulated by the Commodity Futures Trading Commission, CFTC.

The economic downturn in this country is forcing us to examine all contributing factors to the crisis in our financial markets. By restoring reasonable safeguards and regulation of swaps, including credit default swaps, along with all other futures contracts, this legislation will go a long way to restore confidence in the markets and reestablish soundness and integrity in the financial system. My bill will end the unregulated ``casino capitalism'' that has engendered great risks in swaps trading. And it will bring these transactions out into the sunlight where they can be monitored and appropriately and responsibly regulated. This legislation will establish authority and safeguards to ensure that parties can meet their obligations to manage and reduce danger and risk to the entire financial system and economy.

Virtually all contracts now commonly referred to as swaps fall under the definition of futures contracts and function basically in the same manner as futures contracts. This bill amends the Commodity Exchange Act to eliminate the distinctions in the regulatory treatment of futures contracts among ``excluded'' and ``exempt'' commodities, and the transactions in them, and regulated, exchange-traded commodities and transactions in them. Futures contracts for all commodities would be treated the same in the law and regulations.

In addition, the bill eliminates the statutory exclusion of swap transactions from regulation, and it ends the Commodity Futures Trading Commission's authority to exempt such transactions from the general requirement that a contract for the purchase or sale of a commodity for future delivery can only trade on a regulated board of trade. In effect, this proposed change
in the law means that all futures contracts must trade on a designated contract market or a derivatives transaction execution facility. The requirement for exchange trading would thus include over-the-counter trading of financial derivatives just as it does for futures contracts in physical commodities such as corn, soybeans and petroleum.

We have seen large negative consequences from the lack of price transparency and the failure to properly measure and collateralize the risk in trading over-the-counter derivatives. The problems have not been seen in the trading of financial futures on regulated futures markets, subject to the oversight of the Commodity Futures Trading Commission.

This legislation I am introducing will establish the standard that all futures contracts trade on regulated exchanges. The regulated exchanges will work with the Commodity Futures Trading Commission to ensure that trading on the exchange is fair and equitable and not subject to abuses. The Commodity Futures Trading Commission has the experience and expertise to oversee these matters.

Bringing necessary openness, transparency, soundness, and integrity to trading in contracts which are now unregulated over-the-counter swaps and related derivatives is a key element in restoring trust and confidence in the financial system so that we can rebuild our economy on a solid foundation.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

There being no objection, the text of the bill was ordered to be printed in the Record

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