The impassioned efforts of Commodity Futures Trad-ing Commission chairperson Brooksley Born to address formally the notion of over-the-counter derivatives regulation have not gone unnoticed in the financial world. For more than a year now, Born’s constant refrain that the 1993 swaps exemption to the Commodity Exchange Act should be reevaluated in light of the astonishing growth of the OTC markets has been met with equally passionate counterarguments by the biggest players in the business.

Last December 16, Born and her opponents made their cases before the Senate Agriculture Committee, with both sides hoping to mobilize legislative support for their agendas. Born argued, among other things, that the lack of reporting requirements on OTC market participants may have precipitated the Long-Term Capital Management blowup last fall, and that “the prudential controls of LTCM’s OTC derivatives counterparties and creditors, the parties that seemingly had the greatest self-interest in assessing LTCM’s financial wherewithal, apparently failed.”

Now, 12 money-center investment and commercial banks—many of which were LTCM counterparties—have joined together to take some of the wind out of Born’s pro-regulatory bluster. The Counterparty Risk Management Policy Group, consisting of senior derivatives practitioners from Barclays Bank, Bear Stearns, Chase, Citigroup, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley Dean Witter and Warburg Dillon Read (a division of United Bank of Switzerland), will meet periodically over the next few months to take a stab at developing a framework for self-regulation. The group is cochaired by Gerald Corrigan, the former president of the Federal Reserve Bank of New York and currently managing director and cochair of the firm-wide risk committee at Goldman Sachs, and Stephen Thieke, managing director and chair of the risk management committee at JP Morgan.

The group, whose formation has been praised by Securities and Exchange Commission chairman Arthur Levitt, Federal Reserve chairman Alan Greenspan and U.S. Treasury secretary Robert Rubin, reportedly will not focus solely on derivatives, but rather will examine a broad array of credit-based products and the tricky issue of leverage. The CRMPG’s guidelines, scheduled to be released this spring, are intended to serve as flexible, improved best practices for banks, securities firms and other dealers in international financial markets in managing risk and providing credit-based services to major counterparties. The guidelines will also encourage adherents to report certain information to regulators regularly, in order to enhance the efficiency, liquidity and discipline of the financial markets.

The report’s release will likely coincide with the report of the President’s Working Group on OTC regulation, also due out this spring.

Power Vacuum at CFTC

Brooksley Born’s tenure as chairperson of the Commodity Futures Trading Commission is nearly over. The embattled Born, who has taken on Wall Street and other financial regulators over the years in her efforts to regulate the over-the-counter derivatives market, announced last month that she would not seek reappointment and would resign when her term expires in April. Notwithstanding her long friendship with First Lady Hillary Rodham Clinton—-which undoubtedly helped put her on the short list of potential nominees for attorney general in 1992—Born’s chances for reappointment were slim at best and, perhaps seeing the writing on the wall, Born decided to resume practicing law in the private sector, her “true calling.” The leading candidates to replace her are Roger Anderson, deputy assistant secretary for federal finance at the U.S. Treasury Department, CFTC commissioner Barbara Holum, and former Illinois Democratic Sen. Carol Moseley-Braun. According to Washington power brokers, no front-runner has yet emerged. Holum, an outspoken opponent of Born’s OTC pro-regulation agenda, is reported to have informally expressed her interest in the post to various Washington insiders, and would likely receive a great deal of Wall Street support. Holum is also known as a strong supporter of the Democratic Party, making her a palatable choice for presidential appointment. U.S. Treasury secretary Robert Rubin, meanwhile, is said to favor Anderson, while the Chicago futures exchanges reportedly will back Mosely-Braun, who has supported the exchanges in many run-ins with the CFTC in years past.

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