Financial Services Committee Approves Derivatives Regulation

October 16, 2009 ( - New rules for the $450 trillion over-the-counter derivatives market were approved by the House Financial Services Committee Thursday.

According to Reuters, Committee Chairman Barney Frank (D-Massachusetts) tweaked his version of the administration’s OTC derivatives bill, seeking a balance between reducing systemic economic risks posed by the market and protecting the hedging value it offers to businesses. In one change from an earlier version, the committee approved an amendment to require that standardized swaps be traded on an exchange or equivalent electronic platform where deals involve only financial speculation, the news report said.

In a concept paper issued in July that guided the legislation, Frank and House Agriculture Committee Chairman Collin C. Peterson (D-Minnesota) said primary oversight authority of the CDS (credit default swaps) clearinghouse, ICE Trust, will be shifted from the Federal Reserve to a market regulator after a period not longer than six months from the date of enactment.

The lawmakers suggested derivatives must be cleared by an approved clearinghouse, and regulators should have authority to prohibit or regulate transactions that are not traded on exchange or cleared (see House Reps Release Guidance for Derivatives Legislation ).