The House Financial Services Committee, chaired by Rep. Barney Frank (MA-D), has approved a key piece of legislation designed to increase transparency and beef up oversight of the over-the-counter (OTC) derivatives markets. The Over-the-Counter Derivatives Markets Act of 2009 can now move forward to full House consideration in upcoming months. The bill, delivered to Congress in August by the Obama administration, proposes to subject the credit default swap markets and all other OTC derivative markets to comprehensive regulation in order to:
- Guard against activities in those markets posing excessive risk to the financial system;
- Promote the transparency and efficiency of those markets;
- Prevent market manipulation, fraud, insider trading, and other market abuses; and
- Block OTC derivatives from being marketed inappropriately to unsophisticated parties.
The House Financial Services Committee did amend the original bill submitted by the Administration in several ways. One provision added to the bill would require a derivatives transaction cleared through a clearinghouse to be traded on a transparent exchange if it is between financial institutions, but with an accompanying exemption for certain end-user traders who trade derivatives to manage commercial risk to their production facilities, rather than using derivatives for purely speculative purposes. Another amendment to the bill would prohibit private financial institution broker-dealers engaging in major derivatives deals from owning clearinghouse facilities.
The full text of the version of the Over-the-Counter Derivatives Markets Act of 2009 approved by the House Financial Services Committee is available at: http://www.house.gov/apps/list/press/financialsvcs_dem/otc_discussion_draft.pdf
- "OTC Legislation Delivered to Congress," August 12, 2009
- “SEC Approves Two More OTC Central Counterparties,” July 29, 2009
- “Regulatory Reform of OTC Derivatives Markets,” May 18, 2009
- “Waxman-Markey Bill Closes OTC Loopholes,” June 11, 2009
- “PWG Initiatives on OTC Derivatives Oversight and Infrastructure,” November 14, 2008