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Testimony by

William P. Miller II on behalf of the

End-Users of Derivatives Association

Before the U.S. Senate Committee on Agriculture, Nutrition and Forestry

July 30, 1998

Derivatives play an essential role in U.S. and global capital markets and have contributed immeasurably to economic growth and efficiency for countless firms and nations.

Derivatives allow corporations and financial institutions to cost-effectively manage their capital structure, balance sheets, income statements, cash flows and investments as well as their interest rate, currency, commodity price and other risk.

U.S. financial firms, regulators and Congress have had a leadership role in developing the global derivatives market, which is notionally estimated at over $70 trillion.

Derivatives, both exchange traded and over-the-counter, are global.

- Varied products - simple "plain vanilla" to complex, financial to non-financial

- Varied end-user expertise - unsophisticated to sophisticated

- Varied dealer expertise - simple to complex

- Multiple regulatory regimes worldwide

- Varied legal environment ­ uncertain regulatory structure is potential source of risk

CFTC last reviewed the OTC market and provided a written report dated October 1993.

- Since that time, interest rate and currency swaps have increased from notionally

$5 trillion at year-end 1992 to notionally $29 trillion at mid year 1997.

Recognizing the growth and complexity of the global derivatives market, the End-Users

of Derivatives Association (EUDA) believes it is timely and appropriate for a broad-based industry group to be established to perform a comprehensive review of the global derivatives markets.

End-users are essential participants in the derivatives markets and must be intimately and directly involved in this review to assure that end-user interests are properly and adequately reflected.

- EUDA recommends the review be undertaken and completed promptly (and periodically)

and be structured to define key open issues, risks in the system, regulatory "gaps", legal

uncertainty as well as cover the following issues:

. Need for clear and enforceable federal anti-fraud provisions;

. Risk disclosure by derivatives dealers;

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Senate Agriculture Committee

July 30, 1998

. End-user reliance on information provided by derivatives dealers; and

. Regular price and size disclosure of OTC derivatives transactions.

Legislation has recently been proposed by the U.S. Treasury, SEC and Federal Reserve as well as Congressman Leach designed to maintain the regulatory status quo while the derivatives market is reviewed.

EUDA members support legislation which:

Provides sufficient regulatory oversight to assure adequate end-user and broker/dealer protections and safeguards as well as a fair, orderly and efficient derivatives market;

Requires a coordinated regulatory approach by U.S. regulators with oversight of

derivatives to assure risks underpinning the global derivatives markets are properly identified and addressed;

- Assures legal certainty;

Is not unnecessarily burdensome, costly or duplicative to end-users or to brokers/dealers since such costs are typically borne by end-users;

Encourages U.S. dealers to do business through onshore entities rather than offshore entities (offshore entities inject additional credit and legal risk for end-users into the transaction); and

- Continues to foster U.S. firms' global leadership position and franchise in derivatives.

EUDA believes that any moratorium on any or all regulators should expire following the release of the Working Group's report to avoid any uncertainty that proposed legislation could undermine any regulators credibility and effectiveness going forward.

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