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The more transparent a marketplace, the more liquid it is, the more competitive it is

Transparency creates stability in financial markets… this is a foundational precept of our system but is rarely argued… the following is from a speech by CFTC Chairman Gensler to the “Energy Bar Association” on February 24th…

~~~ Transparent Trading Requirement

“… It is not enough, though, simply to promote transparency to the regulators.

Financial reform will be incomplete if we do not make the over-the-counter derivatives marketplace transparent to the public.

An opaque derivatives market, concentrated amongst a small number of financial institutions, contributed to bringing our financial system to the brink of collapse.

Public market transparency greatly improves the functioning of existing securities and futures markets. We should shine the same light on the over-the-counter derivatives markets.

The more transparent a marketplace, the more liquid it is, the more competitive it is and the lower the costs for corporations that use derivatives to hedge their risks. The best way to bring transparency is through regulated trading facilities and exchanges. Such centralized trading venues also increase competition in the markets by encouraging market-making and the provision of liquidity by a greater number of participants. A greater number of market makers brings better pricing and lowers risk to the system.

Further, clearinghouses would be far more able to assess and mange the risk of over-the-counter derivatives with the benefit of transparent trading markets. A critical element of managing clearinghouse risk is marking all cleared positions to a reliable and transparent market price. Absent the transparency provided by trading venues, clearinghouses have less reliable prices when marking to market the derivatives they clear and, thus, are less able to manage their risk and protect the public.

Some on Wall Street have said that they see no need for a transparency requirement. But make no mistake: transparency is an absolutely essential component of reform. Congress should require that all standardized over-the-counter derivative transactions be moved onto regulated transparent exchanges or trade execution facilities…”~~~

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