WASHINGTON - William J. Rainer, the new chairman of the Commodity Futures Trading Commission, will leave the over-the-counter derivatives market alone, a policy that the banking industry has been demanding since last year.
The agency, which oversees publicly traded futures and options tied to financial products or commodities but does not regulate these derivatives, invited three dozen industry officials and other experts to air their views at a half-day roundtable last week.
The session explored a recent report by a presidential panel that concluded the government should not regulate over-the-counter derivatives, which primarily include private swap agreements, options, and certain hybrid products used by large financial institutions to hedge risk.
Roundtable participants praised Mr. Rainer's endorsement of this policy direction and his initial deregulatory moves. "We are glad, and we hope for more," said Mark C. Brickell, a managing director for J.P. Morgan & Co.
Mr. Rainer on Tuesday held another roundtable about the impact of technology on futures and derivatives trading. Such outreach illustrates how much the agency has changed under Mr. Rainer, a former Wall Street bond trader who succeed Brooksley Born in August. Ms. Born ruffled fellow regulators and industry executives with several controversial attempts to regulate swaps.
"The Commodities Exchange Act was not designed to regulate the OTC market," Mr. Rainer said in his first big policy speech in late October. "The national interest in fostering economic efficiency and competition in the OTC derivatives market can only be accomplished by establishing clear legal certainty."
Mr. Rainer said the Commodity Futures Trading Commission would shift from a "frontline regulator" to a less invasive "oversight regulator." Last month the agency officially withdrew Ms. Born's regulatory proposal and issued a rule that permits the Chicago Board of Trade, the New York Mercantile Exchange, and other exchanges to develop new kinds of futures products without prior approval.
But last week's forum also demonstrated that Mr. Rainer must contend with the rival interests of the banking industry and the exchanges. Bank officials want the agency and Congress, in legislation updating U.S. futures laws next year, to make clear that over-the-counter derivatives will not be regulated. The exchanges, however, will resist such moves unless their public trading markets are freed from old rules that, they claim, hinder their competitiveness.
"We the futures market would be left behind whereas the over-the-counter markets would be able to proceed in a very unregulated environment," said Leo Melamed, former chairman of the Chicago Mercantile Exchange and now chairman of the Sakura Dellsher Inc. commodities firm in Chicago. "We don't object to that. We only object that we have not been treated equally."
The two sides do have mutual interests.
Richard E. Grove Jr., executive director of the International Swaps and Derivatives Association, said shielding swaps from government oversight and providing "comprehensive regulatory relief" for the futures exchanges should be Mr. Rainer's top two priorities. Mr. Grove and Mr. Brickell underscored that the banks are major customers of the exchanges and would see their hedging costs lowered if federal red tape for the exchanges were reduced.
"Give them, the exchanges, what they want so long as it doesn't inhibit the OTC derivatives market," said Robert Mackay, senior vice president of National Economic Research Associates, a financial risk management and litigation consulting firm here. He suggested the exchanges could enter the over-the-counter business by providing cross-market clearing or electronic trading services, provided they do not bring federal regulation with them.
