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Governance : Securities & Exchange Commission : Systemic Risks : Financial Regulations

SEC Chairman Statement at Treasury Department Press Briefing on OTC Derivatives

By Mary Shapiro
Mary Shapiro
Securities and Exchange Commission

As many of you know, we are all working hard to effectively reform our financial regulatory landscape.  And, in the process, better police the financial markets and restore investor confidence.   

Already, at the SEC, we have taken steps to streamline our enforcement procedures, hire new skill sets, empower our enforcement attorneys and oversight staff, and upgrade our technological capabilities to better spot trends and detect fraud.  We also have initiated an active rulemaking agenda to ensure that our securities laws are keeping pace with new financial products and that we are responding to the financial crisis.

But no matter how great our capabilities, no regulator can effectively protect investors from unregulated financial instruments.

There is widespread agreement that OTC derivatives, particularly credit default swaps, may have contributed greatly to the financial mess we're cleaning up today.  Unfortunately, the lack of clear regulatory authority over this vast market has hindered the ability of regulators to fully understand how this market functions or to ensure that basic standards of fairness are followed. 

There is agreement now that this needs to change.
Today, current federal statutes significantly restrict the ability of financial regulators to obtain reporting or record-keeping in the OTC derivatives market.  Yet these are the very types of tools that any regulator would need to identify suspicious trading patterns or better understand systemic risks. 

In addition, central clearing for credit default swaps and other OTC derivatives would bring to this market much-needed transparency.  Such transparency will enable regulators to better monitor transactions that are effected through the use of a central counterparty.  Importantly, central clearing would also mitigate the systemic risks created by OTC derivatives.

Mitigating the systemic risks created by OTC derivatives has obviously been a central goal of these efforts.  We have been very supportive of the efforts to improve the risk management practices of OTC derivatives market participants.  Further, we have supported the efforts to move credit default swaps – an important segment of the OTC derivatives market – onto a central clearing platform.  While more work needs to be done to provide facilities for clearing of standardized OTC derivatives, the clearing of CDS is an important step. 

I look forward to continuing to work closely with the other financial regulators to address the systemic risk, market integrity, and investor protection concerns with OTC derivatives. 

Mary Shapiro
Securities and Exchange Commission
Mary L. Schapiro is the 29th Chairman of the U.S. Securities and Exchange Commission. Chairman Schapiro was appointed by President Barack Obama on January 20, 2009, unanimously confirmed by the U.S. Senate, and sworn in on January 27, 2009. She is the first woman to serve as the agency’s permanent Chairman.

Chairman Schapiro’s priorities at the SEC include reinvigorating a financial regulatory system that must protect investors and vigorously enforce the rules; and working to deepen the SEC’s commitment to transparency, accountability, and disclosure while always keeping the needs and concerns of investors front and center.

Prior to becoming SEC Chairman, she was CEO of the Financial Industry Regulatory Authority (FINRA) — the largest non-governmental regulator for all securities firms doing business with the U.S. public. Chairman Schapiro joined the organization in 1996 as President of NASD Regulation, and was named Vice Chairman in 2002. In 2006, she was named NASD’s Chairman and CEO. The following year, she led the organization’s consolidation with NYSE Member Regulation to form FINRA.

Chairman Schapiro previously served as a Commissioner of the SEC from December 1988 to October 1994. She was appointed by President Ronald Reagan, reappointed by President George H.W. Bush in 1989, and named Acting Chairman by President Bill Clinton in 1993. She left the SEC when President Clinton appointed her Chairman of the Commodity Futures Trading Commission, where she served until 1996.

Chairman Schapiro is an active member of the International Organization of Securities Commissions (IOSCO). She was Chairman of the IOSCO SRO Consultative Committee from 2002 to 2006.

A 1977 graduate of Franklin and Marshall College in Lancaster, Pa., Chairman Schapiro earned a Juris Doctor degree (with honors) from George Washington University in 1980. Chairman Schapiro was named the Financial Women’s Association Public Sector Woman of the Year in 2000. She received a Visionary Award from the National Council on Economic Education (NCEE) in 2008, honoring her as a “champion of economic empowerment.”

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