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.

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.

The Financial Services Committee’s bill has been moving in the right direction, an ACLI spokesman says.

“As a primary source of long-term capital for American businesses and governments, life insurers must be able to responsibly manage portfolio risks within a reasonable regulatory environment,” the spokesman says.

Frank said his bill would give commercial businesses flexibility in using the OTC derivatives market while reining in the kinds of speculative trades that led to AIG’s downfall.

“It is in everybody’s interest for as many of these as possible to be traded on exchanges,” Frank said. “To the extent that you increase trading on exchanges, market forces are involved.”

Last week, CFTC Chairman Gary Gensler testified at a Financial Services Committee hearing that AIG’s problems highlight the reasons the swaps markets must be brought under control.

“AIG was not required to meet capital standards or post margin for individual transactions,” Gensler said. “It was not subject to business conduct standards for its back office functions. AIG’s failure was essentially a failure of a central counterparty in the sense that it internalized the credit risks of its trades.”

But Rep. Scott Garrett, R-N.J., argued that moving more derivatives trades onto exchanges would do nothing to prevent another systemic-risk collapse and might eliminate worthy products that are not suited to exchange trading.

Rep. Jeb Hensarling, R-Texas, argued that derivatives were not the cause of the financial crisis.

“Maybe derivatives didn’t work in AIG’s case, but a lot of firms were spared a fate that could be worse [because] they used derivatives to limit their risk,” Hensarling said.