Tuesday, August 11, 2009

Draft Derivatives Bill Sent to Congress

by Calculated Risk on 8/11/2009 03:23:00 PM

From the Treasury:

... One of the most significant changes in the world of finance in recent decades has been the explosive growth and rapid innovation in the markets for credit default swaps (CDS) and other OTC derivatives. These markets have largely gone unregulated since their inception. Enormous risks built up in these markets – substantially out of the view or control of regulators – and these risks contributed to the collapse of major financial firms in the past year and severe stress throughout the financial system.

Under the Administration's legislation, the OTC derivative markets will be comprehensively regulated for the first time. The legislation will provide for regulation and transparency for all OTC derivative transactions; strong prudential and business conduct regulation of all OTC derivative dealers and other major participants in the OTC derivative markets; and improved regulatory and enforcement tools to prevent manipulation, fraud, and other abuses in these markets.
It appears the proposed bill would require standard derivative products to be traded on exchanges, and that all companies involved in derivative trading would be subject to federal regulation.

I haven't found any mention of banning 'naked' CDS (something that was discussed a couple weeks ago), but I haven't read the entire proposal.