WASHINGTON, June 26 The climate-change bill
passed by the U.S. House on Friday would expand federal
regulations by banning "naked" credit default swaps and
requiring over-the-counter derivatives to go through central
It also directs the Commodity Futures Trading Commission to
set position limits on energy traders across all markets and
brings energy swaps under CFTC oversight. The CFTC is the
futures market regulator.
Credit default swaps (CDS) were blamed for amplifying
market turmoil last fall. The sharp decline in financial
markets prompted proposals for broader federal regulation.
Some of the proposals in the climate bill, such as
mandatory clearing of OTC derivatives, are part of the Obama
administration proposal for financial regulatory reform. A bill
pending in the House allows suspension of trading in "naked"
credit default swaps, but would not ban them outright.
The climate bill would limit trading in CDS to people who
also own the underlying security and could suffer loss on the
instrument. A naked CDS is not connected to a credit
Central clearinghouses are regarded as a way to bring
liquidity into markets and to make public the terms of trade.
Clearinghouses guarantee payment of contracts and can require
dealers to hold money in reserve to offset their risks.
While the bill calls for clearing of OTC derivatives, it
allows waivers for rarely traded, customized derivatives.
Eighteen House Democrats suggested in a letter on June 17
that revisions for OTC rules should be reserved for an omnibus
regulatory reform bill, rather than the climate bill. Senate
leaders say they intend to draft such legislation this fall.
Most of the provisions in the climate bill appeared in
recent bills in Congress aimed at controlling speculation in
(Reporting by Charles Abbott; editing by Andre Grenon)