Greenspan Urges Congress To Fuel Growth of Derivatives
New York Times Published: February 11, 2000
The Federal Reserve chairman, Alan Greenspan, urged Congress today to encourage the growth of complex financial contracts known as derivatives before the United States share of that market and associated benefits are lost to other countries.
Recent advances in technology encourage the consolidation of the multitrillion-dollar market for over-the-counter derivatives, even as United States laws impede its development, Mr. Greenspan said in testimony to the Senate Agriculture Committee.
Mr. Greenspan and Treasury Secretary Lawrence H. Summers both endorsed an exclusion from commodities laws for professional investors, which they have previously recommended.
''Rapid changes in communications technology portend that time is running out for us to modernize our regulation of financial markets before we lose them and the associated profits and employment opportunities to foreign jurisdictions that impose no such impediments,'' Mr. Greenspan said in the text of his remarks.
His remarks expanded on a November report by the Fed aimed at ending years of concern about new rules for derivatives.
Congress plans to rewrite the Commodity Exchange Act, which regulates futures trading. The act expires later this year. The Senate Agriculture Committee Chairman, Richard Lugar, an Indiana Republican, said today that he hoped Congress would vote within three months on a bill rewriting the law.
Lawmakers also intend to clarify laws regarding over-the-counter derivatives, investments that rise or fall in value based on the performance of another commodity, currency, security or other asset. Though derivatives are similar to regulated futures contracts, they are not governed directly by any securities, banking or futures rules, and federal laws are vague about whether they should be regulated and if so, by whom.
It is an important issue for major banks and securities firms, which have billions of dollars tied up in derivatives.
