US CFTC nominee backs OTC derivatives clearing

WASHINGTON Feb 4 (Reuters) - The Obama administration's nominee to regulate the U.S. futures market said in a letter released on Wednesday that he supports mandatory clearing of "standardized" derivatives sold over the counter.

Nominee Gary Gensler said, "I support stronger regulation of U.S. commodity markets" in an 11-page letter that responded to questions from Sen Carl Levin, Michigan Democrat. The letter, dated Jan. 26, was released by Levin.

Some senators have been cool to Gensler's nomination for chairman of the Commodity Futures Trading Commission. Iowa Democrat Tom Harkin, for instance, said Gensler held a "deregulatory orientation" while he was a high-ranking Treasury official during the Clinton era.

"If confirmed by the Senate, I look forward to working with Congress to address the regulation of over-the-counter derivatives and excessive speculation in commodities markets," Gensler wrote.

"With respect to over-the-counter derivatives, I look forward to working to bring standardized products into mandatory centralized clearinghouses and onto exchanges, establish a regulatory framework for derivatives dealers and consider possible further regulation for credit default swaps."

Centralized clearing will improve market stability because dealers will be required to post collateral and create a public forum for pricing, Gensler wrote, and it will let regulators track dealers' aggregate positions.

Gensler said CFTC and other federal regulators should work together on possible new regulations "given the unique nature and close relationship of credit default swaps to corporate bonds and other securities."

In other responses, Gensler said:

--he had no role in purported efforts in 1998 by other regulators to prevent CFTC regulation of commodity and financial derivatives. Asked about his role in a 2000 law that restricted federal regulation over swaps, he wrote, "I was a member of a team that worked with and advised then-Treasury Secretary Lawrence Summers on Treasury's positions."

--"I would not consider merger simply for merger's sake" with the Securities and Exchange Commission, as proposed by some, unless it improved market regulation.

--as chairman, he would ask CFTC staff to review all outstanding exemptions for hedgers from position limits.

--trading in OTC derivatives or foreign exchanges can affect prices on CFTC-regulated exchanges and he would work with Congress, the administration and other regulators "to create a transparent, open and accountable regulatory oversight structure for the over-the-counter derivatives market."

--he would support a one-year cooling-off period for commodity regulators before they could take a job with companies they regulate.

A former partner at Goldman Sachs, Gensler was an assistant Treasury secretary from 1997-99 and undersecretary from 1999-2001. He was a member of the Obama transition team that reviewed federal regulation of the stock market. (Reporting by Charles Abbott. Editing by Marguerita Choy)