Reform Proposed in 1990s Needed Now More Than Ever, Says Markey  

WASHINGTON, D.C. – Representative Edward J. Markey (D-MA), former chairman of the House Subcommittee on Telecommunications and Finance from 1987-1995, today announced the re-introduction of legislation he first proposed in 1994 to reform the “derivatives” market which has played a key role in the current financial crisis. Derivatives are complex financial contracts that allow market participants to hedge risk or make speculative bets regarding interest rates, foreign currencies, commodities, credit defaults or other assets.

"Risky and unregulated, the derivatives market has ballooned in recent decades. Billions, trillions, tens of trillions have been traded on paper in this vast but obscure market that stretches across the globe and involves our most prestigious financial institutions. The failure of AIG was the direct result of uncontrolled derivatives. This shadowy world of bets and quick trades must be brought into the sunlight," said Rep. Markey.

The Derivatives Market Reform Act, H.R. 7266, is based on legislation Rep. Markey first introduced on July 14, 1994 as H.R. 4745, and then subsequently reintroduced in 1995 and 1999. The legislation responds to recommendations from a GAO report, "Financial Derivatives: Actions Needed to Protect the Financial System", requested by Rep. Markey during his tenure as Telecommunications and Finance Subcommittee chairman.  The subcommittee had jurisdiction over the Securities and Exchange Commission (SEC) and the financial markets.

The legislation creates a framework for improved supervision and regulation of previously unregulated derivatives dealers, assures appropriate protections for their customers, and establishes certain reporting requirements for hedge funds. 

"In the early 1990s it was already clear that the derivatives markets were too risky to remain unregulated. I held several oversight hearings touching on this topic during 1993 and 1994 and intended to push for strong reform following the GAO's prescient report. Unfortunately, once Democrats lost control of the House in 1994, the new Republican Majority had little interest in increasing financial regulation," said Rep. Markey.

In fact, the Gramm-Leach-Bliley Act of 1999 effectively prevented the Securities and Exchange Commission from conducting any oversight of the derivatives activities of banks.

"Our current crisis has been exacerbated by the failure of the financial regulators to effectively use the tools they had at their disposal to avert a meltdown. By reintroducing the Derivatives Reform Act, I hope to re-open a dialogue on solutions. This may not be the perfect solution, but one thing is perfectly clear: derivatives reform must be part of the strategy to rein in the out-of-control speculation and risk-taking that has severely weakened our financial system," concluded Rep. Markey.

#  #  #

The full text of H.R. 7266 is available here: http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.7266: