Financial Regulatory Forum

WASHINGTON, April 23 (Reuters) – The Senate Agriculture Committee has proposed tough rules for the previously unregulated $450 trillion derivatives market, including a requirement for banks to spin off their swaps trading desks.

Banks and major financial companies that dominate the market are concerned the proposal could cut into their profits — and businesses ranging from oil companies to manufacturers that use derivatives to hedge risk are also worried the bill could hike their costs.

Chairman Blanche Lincoln’s bill was approved by her committee, securing support from Republican Senator Charles Grassley. But it is unclear whether her plan will remain intact in a broad package of financial reforms that could come up for debate at the Senate next week.

Following are the main points in Lincoln’s bill, which can be seen in whole at: http://r.reuters.com/guc98j

BANKS TO SPIN OFF SWAPS DESKS

Banks would be required to spin off swaps desks or give up federal protections such as deposit insurance and access to Federal Reserve discount window and other Fed support.

No federal assistance or bailouts to swaps dealers, major swaps participants, exchanges or clearinghouses.

MANDATORY CLEARING AND TRADING ON EXCHANGE

Standardized, high-volume transactions must trade on

regulated platforms and must go through clearinghouses.

Trading would be allowed only on regulated exchanges or electronic swap execution facilities.

Regulators can determine which swaps must go through

clearing and must trade on-exchange.

Noncash collateral could be used to meet margin

requirements set by clearinghouses.

“END USER” EXEMPTION

Businesses that use, make or sell goods, services or

commodities could seek an exemption from clearing, as long as the swap is being used to hedge commercial risk.

No financial companies eligible for the exemption.

“INCENTIVES” FOR CLEARING

Customized swaps would not be forced to clear, but

regulators would require higher capital requirements for

uncleared swaps.

MANDATORY REPORTING OF TRADES

All trades — including customized swaps and those exempt from clearing — must be reported to regulators.

FOREIGN EXCHANGE SWAPS

Foreign exchange swaps would be regulated like other swaps, unless the Treasury Secretary determines otherwise.

SWAP DEALER REGULATIONS

Regulators will set capital and margin requirements for dealers to reflect the risks they take. Capital costs and regulatory supervision would increase in proportion to a dealer’s use of customized swaps versus standardized

derivatives.

Dealers would be subject to registration, record-keeping and reporting rules.

Regulators would have authority to bring charges against abusive swaps.

POSITION LIMITS

CFTC can set position limits across markets for contracts based on the same underlying commodity.

INSIDER TRADING ON GOVERNMENT DATA

Includes the “Eddie Murphy” rule urged by the CFTC.

Forbids trading on undisclosed government data and forbids government workers from leaking information that

can move prices.

FIREWALLS FOR ANALYSTS, TRADERS

Institutional firewalls to separate analysts from traders at futures commission merchants.

WHISTLE-BLOWER REWARDS, PROTECTION

Protects whistle-blowers and rewards those whose

information leads to collection of fines of more than $1

million with a payment of up to 30 percent of the value of fines collected.

(Reporting by Charles Abbott, Roberta Rampton and Christopher

Doering; Editing by Lisa Shumaker)

((roberta.rampton@thomsonreuters.com; +202 898 8376; Reuters

Messaging: roberta.rampton.reuters.com@reuters.net))

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Keywords: FINANCIAL REGULATION/LINCOLN