Derivatives Bill Gets Traction in Senate

Financial reform is the next big task on Congress’ list of action items, and on Wednesday the Senate Agriculture Committee made progress by approving a bill by committee Chair Blanche Lincoln that targets the derivatives market. Bonus: There was even one Republican, Iowa Sen. Charles Grassley, who voted for Lincoln’s bill, but not without making some tentative noises about his potential vote on a broader reform measure. –KA

The Wall Street Journal:

Ms. Lincoln’s bill is considered by some to be the toughest so far on regulating over-the-counter derivatives.

Like a version that passed in the U.S. House, the bill would require swap dealers and traders to execute contracts on trading platforms and utilize clearinghouses, which guarantee trades. Companies that use swaps to hedge commercial risks such as price moves in oil, however, would be exempt from clearing.

The bill also contains some more controversial provisions, including one that would force banks to spin off their swap desks if they wish to remain eligible for federal assistance from the Federal Reserve and another that would hold banks to a higher fiduciary duty when doing business with governments or pension plans.

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