UPDATE 2-Bill to regulate swaps approved for US House vote

* OTC regulation is goal for Obama, Congress

* Bill requires clearing, exchange trading for many swaps

* Position limits would be set on some swaps, futures

* Lawmakers worry position limits will hurt US exchanges (New throughout with more details on position limit proposal)

By Charles Abbott

WASHINGTON, Oct 21 (Reuters) - The House Agriculture Committee approved a bill on Wednesday for federal regulation of over-the-counter derivatives -- an Obama administration goal -- that would require many swaps to go through clearinghouses.

Swaps that go through clearinghouses would be required to move onto regulated exchanges or electronic platforms. Clearing and on-exchange trading are intended to reduce market risk by assuring payment and making public the terms of trade .

Transactions that involve "end users," such as manufacturers, processors, utilities and airlines, would be exempt from clearing.

It was the second time in a week that a House committee approved a bill to regulate the $450 trillion OTC derivatives market, widely blamed for amplifying last fall's financial crisis.

Agriculture Committee chairman Collin Peterson estimated 70-80 percent of OTC transactions would go though clearing under the bill approved on a voice vote by his committee, which oversees the futures markets. Customized contracts would face higher margin and capital requirements.

The Agriculture Committee oversees the futures markets. The Financial Services Committee, which has jurisdiction over banks and equities, approved a similar bill on Thursday. Plans call a House vote on financial regulations by early November.

"These bills are pretty close," said Peterson. He said he may seek a separate vote on the swaps bill but the decision is up to Democratic leaders.

The Senate has yet to write a financial reform bill.

The administration has called for mandatory clearing and on-exchange trading of "standardized" OTC contracts. Trading in customized contracts would be subject to higher margin and capital requirements. Dealers and market participants would be subject to reporting, recordkeeping and other rules.

Both House committees approved bills that follow that approach except they would exempt transactions involving end users from clearing. The businesses said they often pledge assets as collateral in their deals and do not have the cash they would have to post as margin at clearinghouses.

The Agriculture Committee bill revised a proposed definition of major swap participants to exclude positions held to mitigate commercial risk and to include people whose outstanding swaps substantial risk exposure for the banking or financial system.

Peterson initially proposed that transactions involving end users and Tier 1 financial institutions would have to go through clearing. That idea was dropped from the bill. Peterson said the original language came from the administration.

Frank Lucas, the Republican leader on the committee, said the two changes "make this bill much more end-user friendly and worthy of support."

The Commodity Futures Trading Commission would be required under the Agriculture Committee bill to set position limits -- a maximum market share -- on physically deliverable commodities, such as oil, and on swaps that affect futures prices. The bill would also allow the Securities and Exchange Commission to set position limits on security-based swaps. Regulators could allow exceptions to the limits.

On a voice vote, the committee said CFTC should apply aggregate position limits at the same time to all markets. Otherwise, said Illinois Democrat Deborah Halvorson, position limits might appear on U.S. exchanges before rules are drafted for the OTC or foreign markets, hurting U.S. exchanges.

The bill would require foreign exchanges to adopt similar rules if they want access to American customers. Georgia Democrat David Scott said the provision might spark retaliation overseas against U.S. markets. (Reporting by Charles Abbott; Editing by David Gregorio)