June 18, 2010

To Members of the H.R. 4173 Restoring American Financial Stability Act of 2010 Conference Committee

Washington, DC 20510

Re: Derivatives Trading will not go overseas

Dear Conferee:

The over 250 consumer, employee, investor, community, small business and civil rights groups who are members of Americans for Financial Reform (AFR) write to urge you to support strong derivatives regulation and ignore the pressure from Wall Street to weaken this landmark legislation.

Opponents of Title 7 of the Restoring American Financial Stability Act of 2010 allege that strict regulation of derivatives trading will drive traders abroad to conduct trading overseas rather than subject their transactions to new U.S. rules and regulations. Such arguments do not make sense.

The recent debt crisis across Europe, caused by CDS, belies the argument that regulation is the enemy.  Those who contend that strict regulation of derivatives will cause derivatives traders to go abroad fail to take into account the fact that a large percentage of the developed world is moving to adopt stricter regulations – at least as strict as those enforced in the United States.  Indeed, it is important to remember that this same argument was advanced to deregulate the U.S. derivatives markets.

Under current law, the CFTC may regulate domestic futures trading as well as futures trading done anywhere in the world that significantly and adversely impacts U.S. markets.  In other words, any trader who uses a Dubai-based or London-based terminal to trade derivatives on behalf of a U.S. client will be subject to U.S. rules and regulations.  Traders who attempt to evade the law will have nowhere to run.

Strong derivatives reform is supported across the globe.  On June 2, 2010, the European Parliament’s Economic and Monetary Affairs Committee (ECON) adopted a resolution setting out its recommendations for a new EU-wide regime. The Committee’s recommendations are likely to influence the European Commission (EC), which is due to publish its own proposals later this year.

The key pillars of the Committee’s proposals include (i) compulsory clearing of most OTC derivatives through regulated central clearinghouses; (ii) extensive global reporting standards; and, (iii) increased capital requirements for financial institutions where trades are not centrally cleared.  The measures are intended to reduce the volume of transactions by standardizing OTC derivatives and promoting transparency in what has traditionally been a private market.

The Group of Twenty (G-20), which includes a number of Asian nations such as Japan, China, India and the Republic of Korea, has agreed to support the ongoing derivatives reform in the US and Europe, and in principle, agreed to support any new regulation that passes in those countries.  Multinational corporations that operate in Asia understand that, in order to continue doing business with the U.S. and E.U., they will need to comply with the new regulatory framework.

Innocent people across the globe have witnessed and experienced the devastating power of misused derivatives products.  Indeed, many countries including the United States are currently taking concrete steps to regulate the derivatives markets in an attempt to restore investor confidence in the financial market.  In light of this, the argument that strict regulation of derivative trading will drive traders abroad does not make sense.

Thank you for considering the Americans for Financial Reform position on these important issues.

Sincerely,

Americans for Financial Reform