Congress should not create blanket exemptions from new rules designed to make trading of over-the-counter derivatives more transparent, a commissioner on the top U.S. futures regulator said on Tuesday.

Michael Dunn said the Commodity Futures Trading Commission should be given the authority to exempt end users, companies that rely on hedging to spread their financial risk, from requirements to trade and clear standardized derivatives on a case-by-case basis. But he recommended against a broader exemption now being considered by Senate committees.

Allowing such a large class of transactions to be exempt from clearing would mean that dealers would have more risk on their books. If these dealers fail, this risk could affect the entire financial system, Dunn said in remarks prepared for a National Futures Association regulatory seminar in Chicago.

Dunn's comments are in line with CFTC Chairman Gary Gensler, who has also argued against end user exemptions.

Senate banking and agriculture committees are currently working on bills that would give regulators oversight of the OTC derivatives market that the CFTC estimates is worth about $300 trillion in the United States alone.

The House of Representatives' bill, passed in December, included clearing exemptions for end users. Senate committees working on legislation have also signaled they plan to include some exemptions, but details have not yet been released.


Once U.S. President Barack Obama signs legislation passed by Congress, it will be up to regulators to write detailed rules for market participants.

Gensler has given many speeches about what he wants to see in the legislation, emphasizing all but the most tailored or customized derivatives should be cleared, and exemptions should be narrow. Gensler told reporters on Tuesday that he is taking his message to Congress, too.

I continue to speak to a lot of members of Congress, particularly in the Senate, and their staff, he said.

We're continuing to make our points known.


Derivatives were blamed as part of the trigger for the recent financial crisis, spurring political pressure for tougher regulations and more transparency.

Dunn said he believes regulatory reform legislation will move forward this year, echoing comments made by Gensler and CFTC commissioner Scott O'Malia in the last week.

The CFTC also has proposed position limits for energy markets aimed to prevent excessive speculation, and is seeking public comments on the proposal until April 26.

The CFTC should get oversight over OTC derivatives from Congress to successfully implement proposed position limits, said Dunn, who expressed reservations about the proposal when it was introduced in January.

I feel that if we do position limits without having the over-the-counter regulatory authority and without having substantial international work being done, we could end up with simply having these markets going into an opaque market or dark pool where we don't know what's happening, he told the seminar.

Dunn said he was guardedly optimistic global regulators are working together on reforms.

(Reporting by Roberta Rampton and Christopher Doering in Washington and Mark Weinraub in Chicago; Editing by Lisa Shumaker)