7 December, 2009:
Several authorities over the past few months have been framing regulations to tame the OTC derivatives market. The House of Agriculture Committee, the House Financial Service Committee had presented bills for regulating the OTC derivatives market and the Banking Subcommittee on Securities, Insurance and Investment, introduced the Comprehensive Derivatives Regulation Act of 2009 (See our report here). Now the House of Agriculture Committee and the House Financial Service Committee have reached an agreement on a bill to impose federal regulation for the first time on the over-the-counter derivatives market. The OTC derivatives helps corporations, hedge against operational risks but post financial crisis the lawmakers have been wanting to tighten the regulatory noose to curb the speculative activities.
However there are two issues that are yet to be decided whether to limit ownership in swaps clearinghouses, and whether regulators would have the power to set margin and capital requirements on swaps traded by non-financial end users. The compromise bill includes that the standardized swaps will be traded on the exchange whereas there would be higher margin and capital requirement for customized swaps but registration of dealers and major market participants would be required to ensure transparency and record keeping in trading.
The bill is expected to come up for a vote on the House floor next week as part of financial regulation reform proposals. See the press release here.
[Reported by: Nidhi Bothra]