FACTBOX-Two US House chairmen outline derivatives reform

July 30 (Reuters) - Over-the-counter derivatives should go through central clearing as much as possible, according to an outline of proposed legislation released by the chairmen of the U.S. House of Representatives Financial Services and Agriculture committees on Thursday.

The plan is to draft legislation after Congress returns from its August recess.

Major points in the outline paper were:

OVERSIGHT OF DEALERS, MARKETS

* OTC dealers, exchanges and clearinghouses would be regulated by either the Securities and Exchange Commission or the Commodity Futures Trading Commission based on whether the derivatives they handle are based on securities.

* Clearinghouses "will be robustly regulated." Oversight of ICE Trust, a clearinghouse for credit default swaps (CDS), would shift from the Federal Reserve to the SEC.

* All OTC trades must be reported to a trade repository.

* Regulators must rule within 180 days of a request for approval of a clearinghouse, exchange or electronic trading platform.

CLEARINGHOUSES AND ON-EXCHANGE TRADING

* Derivatives must be cleared by central counterparties unless regulators decide the product is too customized for clearing, no qualified clearinghouse exists or a party is not a "major market participant."

* Trading of OTC derivatives on regulated exchanges or electronic trading platforms will be strongly encouraged.

* Regulators should have authority to prohibit or regulate transactions that are not traded on an exchange or cleared.

STRONGER CAPITAL, MARGIN REQUIREMENTS

* Regulators will develop margin and capital requirements that will encourage dealers to trade derivatives on exchanges or electronic trading platforms and go through clearing.

* "Significantly higher" capital and margin charges will apply to customized transactions that are not traded on exchange or centrally cleared.

* Regulators can authorize use of noncash collateral to satisfy margin requirements.

TWO ANTI-SPECULATION OPTIONS

* At least two anti-speculation options will be considered:

- Ban "naked" credit default swaps. CDS could be purchased by investors who own the underlying security or the security is part of an index of securities, who are a bona fide market maker, or who have a bona fide economic interest that is protected by the CDS.

- Require reporting of all short interest in CDS contracts by OTC derivatives dealers, investor funds that exceed $100 million and "major market participants." Regulators would have power to impose position limits and "ban the purchase of credit protection using CDS by any non-dealer who is not hedging a risk."

Naked CDS are those bought by parties who do not own the underlying asset or face an economic risk.

HARMONIZE U.S., FOREIGN STANDARDS

* U.S. regulators to work with foreign regulators to harmonize regulation of OTC derivatives, including recognized international standards with respect to clearinghouses.

* Treasury Department will be authorized to restrict access to U.S. banking system for institutions from nations with lower capital standards or that promote "reckless" market activity.

SEC, CFTC JURISDICTION

* A Financial Services Oversight Council will be created to determine which agency has jurisdiction over new products and to resolve disputes over interpretation of commodities and securities law.

* Agencies would have enforcement authority over products under their jurisdiction and joint enforcement power over any products subject to joint jurisdiction. (Reporting by Charles Abbott; Editing by Tim Dobbyn)