The Working Group agencies have started drafting the derivatives report and we hope to complete it later this year. In order to meet current and future demands of the U.S. and global financial markets, Treasury believes that the Commodity Exchange Act needs to be modernized. The Derivatives Markets OTC derivatives directly and indirectly support higher investment and growth in living standards in the United States and around the world. Derivatives facilitate domestic and international commerce and support a more efficient allocation of capital across the economy. They can help improve the functioning of financial markets by potentially raising liquidity and narrowing the bid-asked spreads in the underlying cash markets.
Derivatives can also present challenges, however, in the area of risk management.
In addition, market participants can assume extensive leverage through derivatives, as we saw in the case of Long-Term Capital Management. The OTC derivatives market is a vast, global industry. The dramatic growth of the market in recent years is testament not merely to the dynamism of modern financial markets, but to the numerous benefits that derivatives provide for American businesses. Derivatives can help companies of all sizes, and in all industries, to hedge and manage risk that already exists, by transferring that risk to others who are more willing and able to bear such risk. For example, wheat farmers can effectively protect against price fluctuations of their crop during the growing season by entering into futures or forward contracts.