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CFTC makes power grab in derivatives reform bill: Gregg

WASHINGTON (Reuters) - The top U.S. futures regulator has played an outsized role in writing new proposals to crack down on over-the-counter swaps, a power grab that will end up hurting the U.S. economy, Republican Sen. Judd Gregg said on Tuesday.

Republican U.S. Sen. Judd Gregg speaks at the Reuters Global Financial Regulation Summit in Washington April 27, 2010. REUTERS/Larry Downing

Gregg, who had worked on a now-abandoned bipartisan proposal to regulate the $450 trillion OTC derivatives market at the Senate Banking Committee, told the Reuters Global Financial Regulation Summit that he is resigned that “more than one or two” Republicans will ultimately vote for a financial reform package “that will make the Sarbanes-Oxley corporate reform law look like a positive, constructive piece of legislation.”

The Sarbanes-Oxley law, enacted after a wave of accounting scandals shattered investor confidence, created a new bureaucracy to police auditors. It is blamed by some Republicans and U.S. business for hurting U.S. competitiveness.

Gregg, set to retire in November, said the chairman of the Commodity Futures Trading Commission played too great a role in crafting Democratic reforms proposed by Agriculture Committee Chairman Blanche Lincoln.

Lincoln’s reforms are set to be included in the Senate financial reform package, which faces a second procedural vote on Tuesday. The day before, Senate Republicans successfully blocked Democrats’ motion to start debating the bill authored by Senate Banking Committee Chairman Christopher Dodd.

CFTC Chairman Gary Gensler answered questions about the bill and its impact at the committee’s “mark-up” of the bill last week, which Gregg called an “affront” and a “pretty heavy sign” that he was leading the charge on the reforms.

“It’s trying to consolidate as much power as possible ... in-house, and give the chairman of the CFTC basically massive authority over this market at levels never seen before,” Gregg said.

Gregg said Lincoln’s proposals, the bulk of which Dodd has agreed to merge with his bill once debate begins, are meant to penalize large players in OTC derivatives whose risky trades have been blamed for part of the recent financial crisis.

“I thought I’d woken up in Argentina in 1950,” Gregg said, describing his reaction to the Lincoln proposal.

“That bill is essentially a document that is written by people who do not believe in markets, do not believe in capitalism, and hate profit, and basically see ... government as being the correct arbiter of almost anything that has to do with markets,” Gregg said.

Lincoln’s measures call for mandatory exchange-trading and clearing for more derivatives, adopting the principles which Gensler has been urging on Capitol Hill.

The package also includes a controversial proposal that would require banks to spin off swaps desks, which Gensler has stopped short of endorsing.

Gregg told Reuters that he would vote against any bill that included Lincoln’s provisions. He said he would also vote against any bill that gave shareholders an easier and cheaper way to nominate board directors -- an issue known as proxy access.

Gregg blamed the White House for interfering in bipartisan talks that would have produced a derivatives proposal that would require clearing for most swaps, allowing a broader and bigger exemption for businesses hedging commercial risk to seek an exemption.

He had worked with Democrat Jack Reed on a plan that would give regulators power to require groups of derivatives to trade on exchanges, but said mandating trading for all swaps was impractical.

“There are a lot of these instruments which simply aren’t ready for prime time on exchanges,” he said.

Additional reporting by Kevin Drawbaugh, Rachelle Younglai, Karey Wutkowski, Kristina Cooke, Jonathan Spicer, Ann Saphir, Simon Denyer, Martin Howell, editing by Matthew Lewis