Commissioner Bart Chilton of the Commodity Futures Trading Commission (CFTC), whose name is being tossed about as possible CFTC chairman in the incoming Obama administration, says he agrees that the agency should move aggressively to oversee clearing of credit default swaps (CDS), a form of insurance against the default of debt securities, which have contributed to the tumult in the credit markets.

“This is indeed a laudable goal. It is but one part, however, of a comprehensive review of regulatory oversight of the OTC [over-the-counter] derivatives market, sorely needed in the United States. We need the ability to see into these ‘dark markets,’ as well as the ability to act should we detect problems,” he said.

Chilton urged Congress when it reconvenes next week to work toward passage of HR 6604, or some version of the bill, that would provide the CFTC with “precisely such authority.”

Chilton’s remarks were prompted by Acting CFTC Chairman Walter Lukken’s call earlier this week for regulators to push market participants to create a clearinghouse for CDS (see Daily GPI, Nov. 12). Lukken said the agency could take these steps in the near term to address the financial turmoil. However, in the longer term, he proposed a “courageous regulatory reform” that would include scrapping the CFTC, Securities and Exchange Commission (SEC) and various banking regulators and setting up an entirely new and different framework to avoid future meltdowns. This type of widespread reform would require the approval of Congress.

“Regulatory reform on a grand scale [as proposed by Lukken] may come sometime in the future, but in the here-and-now we have the responsibility, as well as the authorities, to address serious market issues with real-time, real-world solutions,” Chilton said.

“In the interim, there are some things we can do now. The CFTC and the SEC can use their existing authorities to cooperate and coordinate more effectively on the regulatory oversight of cross-jurisdictional products. The agencies can work together to enhance market integrity and customer protections. We can promote the clearing of OTC derivatives under our respective oversight authorities, bringing needed transparency to these markets. The CFTC should move aggressively to utilize all available administrative authorities regarding OTC transactions, including re-analysis of noncommercial hedge exemptions and classifications of traders,” he noted.

Chilton, who has been a CFTC commissioner since August 2007, is one of the few individuals being mentioned to be CFTC chairman when President-elect Obama assumes office. He was not immediately available for comment. Lukken, who was named acting chairman by President Bush, has said he will relinquish that title when Obama is inaugurated. Chilton has been one of the more outspoken commissioners, particularly in opposition to proposals to merge the CFTC and the SEC.

In November 2007, Chilton said a merger of the two agencies “doesn’t make sense” and would be ill-advised (see Daily GPI, Nov. 15, 2007). “Let’s not ‘Dial M for Merger.’ It would be a grave mistake, would not result in the putative efficiencies espoused by its proponents, and would do nothing in the way of improving the competitiveness of U.S. markets.”

But a year later he seems to have toned down his position on the merger in light of the market tumult. “Many at the CFTC have maintained a ‘hell no, we won’t go’ stance with regard to merger, for some good and sound reasons. Merging a smaller agency like the CFTC with a larger one like the SEC normally means only one thing — the small agency ends up in the other’s basement and the issues of the smaller agency (in this case, the one with responsibility for oversight of futures) become less of a priority,” and that “would be bad for consumers and businesses,” Chilton said in late October.

“That doesn’t mean, however, that — given the events of recent months — the issue of merger should be off the table. Things have changed since the last time the issue was debated.”

Others being discussed as possible candidates for the CFTC chair include current CFTC Commissioner Michael V. Dunn; Daniel Waldman, a partner with the law firm of Arnold & Porter LLP and former CFTC general counsel; and Geoffrey Aronow with the law firm of Bingham McCutchen LLP, the Legal Times reported.

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