House panel votes to delay swaps regulation

WASHINGTON Wed May 4, 2011 3:15pm EDT

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WASHINGTON (Reuters) - A Republican-controlled committee in the House of Representatives voted on Wednesday for an 18-month delay of regulations intended to reduce risk in the vast over-the-counter derivatives market in response to the financial crisis.

The delay may be passed by the House but has little chance of becoming law. There is no similar Senate bill and futures regulators say they do not need the additional time.

Sponsor Frank Lucas, a Republican from Oklahoma, said regulators are rushing to implement dozens of rules and risk errors through slapdash drafting.

"It is time for us to slow it down," said Lucas, chairman of the House Agriculture Committee, which oversees futures markets.

The bill is part of a broader Republican effort to strangle last year's Dodd-Frank financial oversight law through delays, budget constraints and structural changes to the new consumer financial agency.

Committee members approved the 18-month derivatives delay 25-20, a rare party-line vote for a panel that prides itself on collegiality. The bill now goes to the House Financial Services Committee, whose chairman also is a sponsor. It may vote on the bill next week.

The Dodd-Frank law, enacted last July, extended federal regulation to the $600 trillion over-the-counter derivatives market. It requires derivatives to go through clearinghouses and to trade on regulated exchanges as much as possible. Clearinghouses would reduce the risk of default and trading on exchanges would make public prices and sales terms.

Collin Peterson, the Democratic leader on the agriculture committee, said the proposed delay was a gift to the big banks and trading houses that dominate OTC derivatives.

"In the Republican vision for financial reform, all we need, I guess, is reporting of swaps to regulators" rather than regulation, said Peterson.

Lucas' bill would delay until Dec 31, 2012, most of the derivatives rules required under Dodd-Frank. It would keep the deadline of this July for swaps traders to report their deals to regulators and for regulators to define who is covered by the law.

Under the Lucas bill, U.S. regulators could exempt swaps dealers or buyers from oversight if another agency, such as an overseas regulator, is watching them. The bill also requires a thorough cost-benefit analysis of derivatives regulations.

Fifteen groups, ranging from manufacturers, the oil industry, utilities, the Business Roundtable and the U.S. Chamber of Commerce, said they support the delay as a way to prevent a smothering load of rules and new expenses.

As an example, they said the Commodity Futures Trading Commission proposal for businesses to post margin on their deals could hurt "end users," such as airlines, utilities and manufacturers who use derivatives to assure a supply of raw materials at a guaranteed price.

Connecticut Democrat Joe Courtney was defeated, 23-22, when he suggested the remedy for high fuel prices would be to keep the July deadline for a rule that limits market share in an attempt to curb commodity market speculation. Courtney said a wave of money from hedge funds was driving up prices.

"Our people are suffering because of that market," said Courtney, pointing to gasoline prices above $4 a gallon. Republican Mike Conaway from Texas, an oil state, responded, "I have seen no evidence that position limits is the Holy Grail of oil prices."

Regulators have worked furiously to meet deadlines set by the Dodd-Frank law but they have missed or intend to miss several.

Last week, the CFTC, which has released roughly 40 proposed rules, reopened the comment period for most of them for as much as 30 days. Regulators are expected to start finalizing the swaps rules beginning this summer.

(Reporting by Charles Abbott and Christopher Doering; Editing by Tim Dobbyn)

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