WASHINGTON The Obama administration's plan to regulate the $450 trillion private swaps market would give the two main market regulators a share of the duties by splitting oversight of credit default swaps, which were responsible for exacerbating the financial crisis.
The swaps, which increased financial distress by spreading losses from bets on risky mortgages and other debt, would be overseen by securities and futures regulators, the White House said in legislative language delivered to Congress on Tuesday.
Under the proposal, the Securities and Exchange Commission and Commodity Futures Trading Commission would work together to create rules for the industry.
Although the market regulators have been helping the administration finesse its derivatives plan, the SEC and CFTC have a long history of not being able to sort out financial products that can be viewed as both securities and futures.
The administration said the Treasury Department would be required to act quickly to resolve any disputes should they arise, noting on a conference call with reporters on Tuesday that they expected the SEC and CFTC to be "able to work well together."
"While there is never 100 percent agreement ... the SEC and CFTC have been acting in good faith and partnership and we expect they will continue to do so," said one official who asked not to be named.
Banking regulators would oversee derivatives dealers that are banks while securities and futures regulators would supervise other dealers, according to legislative language.
Key congressional members have already sketched out plans to supervise the loosely regulated industry. The administration's plan is similar in most points to what Congress is crafting and includes giving the SEC and CFTC power to limit holdings of the swaps.
CFTC Commissioner Bart Chilton said he was particularly pleased that the administration proposed position limits. The CFTC is weighing whether to set such limits on oil contracts, which soared to record highs last year amid complaints of speculation.
However, a House of Representatives outline would deny a role to banking agencies in the regulation of derivatives.
For months policymakers have pushed for more so-called standardized contracts to be cleared by a central clearinghouse. According to the White House language, all standardized contracts would be required to be cleared and be traded on exchanges or via a "swap execution facility."
The administration shied away from the thorny issue of defining "standardized contract," and instead said regulators would write a broad definition within six months of the law being enacted.