ISDA WELCOMES INTRODUCTION OF S.2697

The International Swaps and Derivatives Association welcomed the formal introduction on June 8, 2000 in the United States Senate of S. 2697, the proposed "Commodity Futures Modernization Act of 2000". S. 2697 was introduced jointly by Senator Richard Lugar, the Chair of the Senate Committee on Agriculture, Nutrition and Forestry, Senator Phil Gramm, the Chair of the Senate Committee on Banking, Housing and Urban Affairs, and Senator Peter Fitzgerald of Illinois.

"ISDA has previously urged Congress to develop legislation that builds upon the unanimous recommendations of the President's Working Group on Financial Markets and this legislation contains important provisions intended to remove the Commodity Exchange Act as a source of legal uncertainty for OTC derivatives transactions", said Rick Grove, ISDA's Chief Executive Officer and Executive Director.

While the Report of the President's Working Group focused on the treatment of OTC derivatives transactions based on financial commodities, S. 2697 seeks to provide legal certainty for additional categories of OTC derivatives transactions, including those based on energy commodities. While most OTC derivatives transactions today are based on financial commodities such as foreign currency and interest rates, Mr. Grove noted that "legal certainty should be provided for a broad range of OTC derivatives transactions in order to foster financial innovation and thereby enable America's 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, as is true in many legislative endeavors, some provisions of S. 2697 may be controversial. "ISDA will continue to work vigorously with the Congress, the President's Working Group and all other interested parties to achieve a broad consensus on legal certainty issues as the legislative process moves forward", said Mr. Grove.

"We applaud the continuing leadership of Senator Lugar and Senator Gramm. We hope that their leadership, with the continued active and important participation of Senator Fitzgerald, will provide the catalyst for passage this year by the full Senate of legislation modernizing the Commodity Exchange Act to provide legal certainty for OTC derivatives and regulatory relief for the futures exchanges", added Mr. Grove.

ISDA also expressed support for the decision to include in S. 2697 provisions to remove barriers to the use of electronic trading facilities and to assure that the development of clearing facilities for OTC derivatives transactions will no longer be deterred by regulatory barriers. Finally, ISDA applauded the strengthening in S. 2697 of the "Treasury Amendment" to the Commodity Exchange Act, which provides an exclusion from the CEA for transactions in foreign currency, government securities and other enumerated financial commodities.

Mr. Grove noted that ISDA has for many years advocated legislation to provide legal certainty for OTC derivatives transactions. He added that separate bills to accomplish this objective had previously been introduced in the House of Representatives by Representative Ewing, the Chair of the House Subcommittee on Risk Management, Research and Specialty Crops, and by Representative Leach, the Chair of the House Committee on Banking. "We welcome the commitment of all of these key members of Congress to the goal of legal certainty legislation and we look forward to working with all of them, their colleagues in Congress, the Administration, the Commodity Futures Trading Commission, other regulatory agencies and interested private sector parties in securing final and bipartisan action on legislation this year", said Mr. Grove.