The Commodities Futures Trading Commission (CFTC) is poised to obtain broad discretion to regulate the traditionally private over-the-counter (OTC) derivatives markets under the U.S. financial reform bill.  The notional amount of outstanding OTC derivatives has been estimated at $615 trillion as of December 2009.

While the Securities and Exchange Commission will regulate security-based derivatives, the CFTC will regulate swaps, which are a much larger component of the derivatives market.  Language currently in the bill would require large swap traders to register with the CFTC and disclose details of proposed swaps, as well as possibly establish position limits on trading.  The CFTC would also have discretion to regulate clearing houses that process derivatives.  CFTC Chairman Gary Gensler compared these regulations to “street lights” on “dark and dangerous highways.”

As reported by Reuters, Gensler is very interested in shaping the legislation and has been spending much of his time meeting with high-profile lawmakers, including Senate Banking Committee Chairman Christopher Dodd, the ranking Republican committee member Richard Shelby and Senate Agriculture Committee Chairman Blanche Lincoln.