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Bill to regulate Credit Default Swaps goes to House Financial Services Committee [View All]

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JohnWxy Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-02-09 09:02 PM
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Bill to regulate Credit Default Swaps goes to House Financial Services Committee
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Edited on Mon Mar-02-09 09:04 PM by JohnWxy

Derivatives Markets Transparency and Accountability Act of 2009
(H.R. 977

Peterson developed the bill in response to complaints from petroleum dealers, farmers and country elevator operators that speculation by hedge funds and other institutional investors in the oil and agricultural commodity markets led to artificially high prices and in reaction to the role that credit default swaps played in the financial crisis.

The bill would amend the Commodity Exchange Act to require most over-the-counter derivatives contracts to be settled and cleared on an exchange regulated by either the CFTC or the Securities and Exchange Commission.

Peterson told reporters that the bill would make it illegal for the Intercontinental Exchange and eight big banks to proceed with a plan to create a clearing corporation that would be regulated by the Fed. Peterson said he does not want the Fed to regulate a derivatives clearing corporation because he fears that in a time of trouble the Fed would stand behind the banks and use taxpayer funds to bail them out.


The committee passed the bill by voice vote. Republicans proposed other amendments that would have weakened the bill, but the Democrats stopped them. Rep. Jerry Moran, R-Kan., proposed to give the CFTC more freedom to grant exemptions to derivative settling, but the committee rejected it by a vote of 27 to 16.
The bill also requires the CFTC to set limits on the amount of positions traders can hold on physical commodities, which means largely energy and agricultural commodities.

This is a very important bill. It will reign in the use of Credit Default Swaps to avoid position limits in trading commodities futures. The Wall Street banks are out to stop this because it means hundreds of millions of dollars in business for them as they aere the ones who offer the CDSs to those who want to speculate without controls in commodities. This is exactly how the price of virtually all commodities (like oil and farm commodities, i.e. FOOD) shot up from Aug 2007 to July 2008.

The bill also empowers the CFTC to "to investigate and prosecute criminal violations of the Commodity Exchange Act." Currently the CFTC only has civil authority and must refer criminal cases to the DoJ.

Further, the final bill marks a change from the draft version's stance on
credit default swaps, giving the CFTC authority to suspend trading in credit
default swaps. Such products "traded or cleared by registered entity shall
not be considered securities except as necessary for enforcing insider trading
prohibitions," according to the bill's summary.

Some industry representatives, speaking last week before the House
Agriculture Committee, were concerned that Peterson's original language would
have killed the credit default swaps market. The draft bill would have
disallowed a party from entering into a credit default swap unless it had
direct exposure to the underlying product.
{unfortunately, the industry
was able to get this taken out of the final version. Thus speculation by
those not owning or trading in the physical commodity can still speculate
on the price of that commodity__JW}

Like the original draft version, Peterson's bill will require
international exchanges that host US-based commodities to share data with the
CFTC and adopt position limits similar to those imposed on US exchanges. It
also would require the agency to break out the positions of index funds and
other passive investors in all regulated markets and provide that information
to the public.

In addition, the bill would subject OTC commodity transactions to
reporting and recordkeeping requirements and to its large-trader reporting
requirements, will give the CFTC special-call authority to obtain information
on any OTC market position and will require the agency to review the OTC


for details of the bill go here:
Thomas Register

This bill has been referred to the House Financial Services Committee

Please go to and contact members of that committee if you are interested in seeing this bill move forward. or contact Barnie Frank, Chairlman, House Financial Services Committee.

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