Canadian Securities Law : Canadian Securities Lawyer & Attorney : Stikeman Elliott Law Firm : Montreal, Ottawa, Calgary, Vancouver, Montreal, Toronto

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Secretary Geithner Photo Courtesy of www.treasury.gov

On August 11, the U.S. Department of the Treasury announced that it had delivered to Congress proposed legislation respecting the regulation of over-the-counter (OTC) derivatives. Treasury Secretary Timothy Geithner spoke of the need for such regulation during testimony to Congress in July. According to the Department's press release, the proposed legislation "will provide for regulation and transparency for all OTC derivative transactions; strong prudential and business conduct regulation of all OTC derivative dealers and other major participants in the OTC derivative markets; and improved regulator and enforcement tools."

Specifically, the draft legislation requires that standardized OTC derivatives be centrally cleared by a securities or derivatives clearing organization, while encouraging the use of such standardized derivatives through higher capital and margin requirements for non-standardized derivatives. Financial regulatory agencies will have access on a confidential basis to OTC derivative transactions, while aggregated data on open positions and trading volumes will be available to the public. Meanwhile, federal banking agencies, the Commodity Futures Trading Commission and Securities and Exchange Commission will supervise and regulate OTC derivative dealers and major market participants. The Treasury Department hopes to have the reforms passed by the end of the year.