House bill would slow new derivatives rules

WASHINGTON Fri Apr 15, 2011 7:19pm EDT

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WASHINGTON (Reuters) - Two House chairmen in charge of derivatives trading proposed an 18-month delay on Friday in implementation of new federal controls of the $600 trillion over-the-counter derivatives market.

Regulators need more time to design the controls and to gauge their impact on the market, said chairman Spencer Bachus of the House Financial Services Committee and chairman Frank Lucas of the House Agriculture Committee. They unveiled a bill to extend the deadline for new rules.

The Dodd-Frank financial reform law brings over-the-counter derivatives under federal control. It requires derivatives to go through clearinghouses and to trade on regulated exchanges as much as possible.

It also gives U.S. regulators authority to limit market share by traders. So-called end-users, who rely on derivatives to guarantee the price and supply of raw materials, would be exempt from clearing.

Bachus and Lucas have repeatedly said regulators are overly hasty in drafting rules to satisfy the reform law. A Lucas aide said the Commodity Futures Trading Commission had proposed 40 derivatives rules since Dodd-Frank became law last year.

"We don't see the need for a change," CFTC chairman Gary Gensler told Reuters, referring to the delay. Collin Peterson, the Democratic leader on the Agriculture Committee, said a delay would benefit "the special interests and financial players who want to maintain the regulatory status quo".

The chairmen said their proposed 18-month delay reflected the concerns of thousands of U.S. companies that use derivatives to manage risk, such as manufacturers that hedge against fluctuating prices in the raw materials they use.

The legislation faces an uphill battle, with Democrats and President Barack Obama resisting efforts to slow the overhaul of the financial system.

The opaque over-the-counter derivatives market was widely blamed for helping accelerate the 2007-2009 financial crisis. To try to prevent future contagion from bad trades, the law requires all swaps be reported, and many of the deals to trade in more transparent venues connected to clearinghouses.

Under the law, regulators such as the CFTC and the Securities and Exchange Commission have until July to finish their regulations. They have worked furiously to try to meet their deadlines, but have missed or intend to miss several.

"Despite the best efforts of the regulators, the rules have not been proposed in a logical sequence, and if implemented on the current timeframe, could weaken U.S. markets during a period of economic recovery," Bachus said.

"Hopefully, the additional time and information provided by this bill will allow the regulators to engage in the proper due diligence to get the derivatives rules right from the start," he said.

To provide clarity to those impacted by the rules, the bill would maintain the current timeframe for the CFTC and SEC for some slices of the derivatives regulations.

It would keep in place the timeline for issuing final rules for definitions such as swaps and swap dealers, and for rules requiring record retention and regulatory reporting.

Republican lawmakers, along with those affected by the new regulations, have accused the CFTC of emphasizing speed over deliberation in writing the rules. Some have called for a delay to collect more data and determine how the measures will affect the market.

(Editing by Dale Hudson)

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