ISDA WELCOMES INTRODUCTION OF H.R. 4541

The International Swaps and Derivatives Association welcomed the formal introduction on May 25, 2000 in the U.S. House of Representatives of H.R.4541, "The Commodity Futures Modernization Act of 2000". The proposed legislation was introduced by the Honorable Thomas W. Ewing, the Chair of the House Subcommittee on Risk Management and Specialty Crops.

"Chairman Ewing's legislation builds upon the unanimous recommendations of the President's Working Group on Financial Markets that Congress enact legislation to provide legal certainty that OTC derivatives transactions will continue to be enforceable by the contracting parties in accordance with their terms", said Rick Grove, ISDA's Chief Executive Officer and Executive Director. "We applaud Chairman Ewing's continuing leadership in this area. We believe this bill can serve as a vehicle for the enactment of comprehensive legislation to modernize the Commodity Exchange Act by providing legal certainty for OTC derivatives and regulatory relief for the futures exchanges and we look forward to continuing to work with Chairman Ewing and his colleagues", added Mr. Grove.

Chairman Ewing's legislation is intended to eliminate legal uncertainty for OTC derivatives transactions under the Commodity Exchange Act. As recommended by the President's Working Group, the legislation would generally exclude OTC derivatives transactions based on financial commodities from the CEA. In addition, the Ewing legislation would provide a new statutory exemption from the CEA for OTC derivatives transactions based on energy commodities and other metals. ISDA strongly supports Chairman Ewing's decision to seek to provide statutory legal certainty for virtually all categories of OTC derivatives transactions.

While most OTC derivatives transactions today are based on financial commodities such as foreign currency and interest rates, Mr. Grove noted that "legal certainty must be provided for all types of OTC derivatives transactions if innovation is to continue to occur and thereby enable American businesses and other end users effectively to manage the financial, commodity and other market risks inherent in their core economic activities." Mr. Grove also noted that ISDA would continue to work constructively with Chairman Ewing and other interested parties in seeking a consensus to strengthen the legal certainty provisions of the Ewing bill as the legislative process moves forward.

ISDA also expressed support for Chairman Ewing's decisions to seek to promote financial innovation and economic efficiency both by removing barriers to the use of electronic trading facilities and by assuring that the development of clearing systems for OTC derivatives transactions no longer will be deterred by the prospect that such systems could result in regulation of the underlying transactions under the CEA.

Finally, ISDA applauded Chairman Ewing's decision to retain and clarify the so-called "Treasury Amendment" to the Commodity Exchange Act. The Treasury Amendment excludes OTC derivatives transactions in foreign currency, government securities and other enumerated financial commodities from the CEA. "The Treasury Amendment has worked, and worked well, for more than 25 years and we believe it should be retained as an integral part of a modernized Commodity Exchange Act", said Mr. Grove.

Mr. Grove noted that ISDA has for many years advocated legislation to provide legal certainty for OTC derivatives transactions. He added that a separate legal certainty bill has previously been introduced by Representative Leach, Chair of the House Banking Committee and that a CEA reform bill being developed by Senators Lugar and Gramm was likewise expected to contain strong legal certainty provisions. "We welcome all of these initiatives and look forward to working with Congress and its several committees, the Administration, the Commodity Futures Trading Commission, other regulatory agencies and interested private sector parties in achieving passage of bipartisan legislation this year," said Mr. Grove.