Long-Term Capital Management's collapse underscores the importance of transparency, a strength of the futures markets, said Brooksley Born, chairwoman of the Commodity Futures Trading Commission, speaking today before the Derivatives and Commodities Law Institute.
``While the CFTC and the U.S. futures exchanges had full and accurate information about LTCM's exchange-traded futures positions . . . no federal regulator received reports from LTCM on its (OTC) derivatives positions,'' Ms. Born said.
In response to questions, Ms. Born said she doesn't favor the abolishment of the CFTC, as suggested yesterday by John P. Davidson, managing director of Morgan Stanley. Moreover, Ms. Born, said there would not be significant cost savings to merging the CFTC with the SEC.
Separately, Thomas A. Russo, managing director and chief legal officer for Lehman Brothers, said a standardized method of disclosure between banks and their customers should be established, although mandated disclosure by regulators wouldn't be proper.
Mr. Russo, who participated in the discussions to bail out Long-Term, said competitive pressures among banks led to a loosening of credit standards in the Long-Term situation. Adopting minimum universal disclosure would help combat the problem going forward, he said.