WASHINGTON BUREAU — Members of the House Financial Services Committee today voted 43-26, mostly along party lines, to approve a proposal that could impose federal regulation on the over-the-counter credit default swaps market.
All Democrats on the panel voted for the Over-the-Counter Derivatives Market Act of 2009 draft. Only one Republican, Rep. Walter Jones, R-N.C., voted for the draft, which was developed in response to the kinds of problems that prompted the near-collapse of American International Group Inc., New York.
The draft bill now goes to the House Agriculture Committee, which has oversight over the Commodities Futures Trading Commission.
The Agriculture Committee plans to consider a similar bill that it has drafted Oct. 21. House leaders want to see the Agriculture Committee and the Financial Services Committee agree on a single version before letting a bill go to the floor.
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Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee, said he hopes a bill can be signed by the end of the year.
The bill the Financial Services Committee passed would require that trades between major financial players — such as banks, hedge funds and AIG’s financial products arm — be made through exchanges.
Trades by airlines, manufacturers, farmers and other “end users” that use derivatives to hedge against business risk, would be exempt. Life insurers would be exempt when they were using derivatives contracts to manage interest rate risk and capital-loss risk associated with the long-term securities that fund insurance products.
The draft bill also would give the Securities and Exchange Commission and the CFTC the authority to exempt firms from the exchange requirement, and the bill draft would require that all derivatives transactions, both standard and customized, be reported to a central trade repository, in an effort to make prices easier to get.
The American Council of Life Insurers, Washington, has testified about how important derivatives are to insurers’ efforts to manage risk.