ASHINGTON – Today, U.S. Senator Maria Cantwell (D-WA), together with Senators Ron Wyden (D-OR) and Bernie Sanders (I-VT), proposed legislation empowering state gambling regulators and attorneys general to examine unregulated derivatives trading and take appropriate action to protect citizens from practices which can harm the foundations of our economy. As part of a broader effort by Congress to pass comprehensive financial regulatory reform, Cantwell’s proposal treats derivatives trading for what it is: a sophisticated form of gambling.
“The derivatives market has done so much damage to our economy and is nothing more than a very high-stakes casino – except that casinos have to abide by regulations,” Cantwell said. “Even in Las Vegas at the Blackjack tables, both the House and the player have to have capital behind their bets. But we allow Wall Street to continue to operate in the dark and without capital to back up bets on derivatives. We remain at risk of further harm until we have the tools to stop abusive speculative practices.”
In 2000, Congress passed a little-known provision in the Commodities Futures Modernization Act (CFMA) of 2000 that exempts derivatives traders from state gambling regulations. Cantwell’s proposal would repeal this provision. Since the CFMA went into effect, the derivatives market has ballooned from $80 trillion to more than $600 trillion. The lack of any regulations at the federal level meant that, in effect, the 2000 law made it open season for rampant derivatives speculation that culminated in the economic collapse of 2008.
The legislation Cantwell, Wyden and Sanders proposed today sends the message to derivatives dealers that if they somehow succeed in preserving regulatory loopholes at the federal level, they will still face tough regulatory oversight at the state level.
“Our ultimate goal is a strong, uniform set of federal regulations,” Cantwell continued, pointing to legislation proposed today by Senator Christopher Dodd (D-CT), chairman of the Senate Committee on Banking, Housing and Urban Affairs, that seeks to address loopholes and exemptions in federal derivatives law. “I am pleased that Senator Dodd today is moving forward with important legislation to regulate the dark derivatives market, and I look to the Senate Agriculture Committee to play a critical role as well. Congress must take a strong stand to prevent the kinds of abuses that have cost American workers and taxpayers so much. Empowering states restores an important layer of protection.”
While the Senate Banking Committee is proposing new rules on derivatives markets, the Senate Agriculture Committee has primary jurisdiction in amending the Commodity Exchange Act – the law that governs derivatives trading.