Obama's Pick for Commodity Post Vows New Era of Regulation

By IAN TALLEY

WASHINGTON -- President Barack Obama's nominee to head the Commodity Futures Trading Commission promised in correspondence with lawmakers he would usher in a new era of regulation.

Senators have raised concerns in recent weeks about Gary Gensler's prior tenure as a Treasury official, when the government deregulated derivatives markets, a move some say contributed to the current financial crisis.

"I believe that both our financial system and our regulatory structure have failed the American people," Mr. Gensler said in response to a series of 19 questions from lawmakers last week. "We must work to ensure...a far more stable and resilient financial system, to better protect market integrity and the price-discovery function," he told lawmakers.

The correspondence is a preview of Mr. Gensler's as-yet-unscheduled Senate confirmation hearing, expected later this month before the Senate Agriculture Committee. Sen. Tom Harkin (D., Iowa), the panel's chairman, said after meeting the former Clinton administration official last week that he was still concerned about the "deregulatory orientation in this nominee's past."

Mr. Gensler served at the Treasury in 2000, when Congress passed the Commodity Futures Modernization Act, or CFMA, which essentially deregulated complex financial instruments called credit-default swaps. He was one of the officials responsible for examining what kind of regulatory overhaul, if any, was necessary for the swaps market.

Critics contend the CFMA allowed for the lax oversight that helped lead to the eventual collapse of Lehman Brothers Holdings Inc. and other troubled financial companies.

Mr. Gensler said in the correspondence that, while at the Treasury, he argued for regulation of then-unregulated derivatives dealers affiliated with brokerages, and had a very limited role in drafting the CFMA.

He wrote the senators, "If confirmed by the Senate, I look forward to working with Congress, my fellow commissioners and other regulators to consider appropriate capital requirements, business-conduct standards, and other rules for derivatives dealers."

Specifically, he said he would institute position limits on futures trading, oversee the move of over-the-counter derivatives onto exchanges and clearing houses, and bring a new level of scrutiny to hedge funds, electronic markets and foreign exchanges operating in the U.S. He also urged lawmakers to resist merging the CFTC with the Securities and Exchange Commission, a move many have suggested.

Mr. Obama and Treasury Secretary Timothy Geithner are expected soon to launch a revamp of the financial regulatory system that will tackle some of these thorny issues.

Harkin spokeswoman Kate Cyril declined to say whether Mr. Gensler's responses assuaged her boss's concerns. An aide to a senior senator said that while Mr. Gensler was likely to face some tough questions at his hearing, he believed the former Treasury official would be approved by the chamber.

Mr. Gensler was picked in December to head the CFTC. Mr. Gensler, a former Treasury undersecretary, was a partner at Goldman Sachs Group Inc. for nearly a decade.

Write to Ian Talley at ian.talley@dowjones.com