Financial Regulatory Forum

WASHINGTON, March 16 (Reuters) – The path to government regulation of the $450 trillion market in over-the-counter derivatives must wind through the U.S. Senate Agriculture Committee, which oversees futures markets.

The journey began in the House of Representatives in December with the passage of a bill that would bring OTC derivatives under government regulation for the first time.

The Senate Banking Committee is also involved. A bill unveiled on Monday by its chairman calls for new rules for the market, which is dominated by a handful of Wall Street firms, including Goldman Sachs and JPMorgan Chase.

The Obama administration and most congressional Democrats favor an OTC derivatives crackdown, with many Republicans on board as well. But Wall Street lobbyists keen to protect the substantial profits produced by derivatives trading are pushing to write loopholes and exemptions into the new regulations.

There is wide consensus among lawmakers to require mandatory clearing and exchange trading of standardized derivatives. Trading of customized swaps would be reported, with the expectation of higher margin and capital requirements.

WASHINGTON, March 2 (Reuters) – The nominee for the U.S. Treasury’s top domestic post on Tuesday said he believed certain derivatives contracts, such as dollar swaps, could be exempted from being traded on exchanges under Obama administration proposals to boost market transparency.

Jeffrey Goldstein, who was named in July 2009 to become Treasury undersecretary for domestic finance, told the Senate Finance Committee that the administration’s market reform proposals would prevent abuse and promote transparency, but there were certain cases where derivatives might be better off not traded on exchanges.

“I think that the exemptions would be in certain markets where you could adversely affect the trading of some important securities — including the dollar swaps, and other things,” Goldstein said, answering a question during a confirmation hearing. He added that he looked forward to examining the issue further with lawmakers.

By Luke Baker and David Brunnstrom

BRUSSELS, Feb 15 (Reuters) – The European Union has asked Greece to explain reports that it engaged in derivatives trades with U.S. investment banks that may have allowed it to mask the size of its debt and deficit from EU authorities.

According to the New York Times, one contract in 2001 — carried out just as Greece was joining Europe’s monetary union — involved Greece selling forward future lottery receipts and airport landing fees in exchange for cash to write down debts.

The deal was treated as a currency trade rather than a loan, according to the newspaper, allowing Greece to hide it from public view while meeting EU deficit limits.

(Updates with dealer comments, background)

MUMBAI, Jan 19 (Reuters) – India’s central bank on Tuesday allowed the introduction of currency futures in euro, yen and pound sterling, a move dealers said would improve liquidity in the derivatives market.

The approval will expand the currency futures trading from the dollar-rupee contracts that was started in 2008, and will help participants hedge their risks in more currencies.

“This will improve liquidity further and facilitate price discovery better for non-dollar pairs,” said R.K. Gurumurthy, head of treasury at ING Vysya Bank.

(Adds more detail on derivatives legislation)

BRUSSELS, Jan 13 (Reuters) – Speculation in commodity derivatives has been “scandalous” and needs to be regulated carefully, the European Union’s nominee for chief financial watchdog said on Wednesday.

“Why do we have this speculation we have had over the last two to three years in raw materials,” Michel Barnier, EU internal market commissioner-designate, said.

“I am talking about speculation which to me is scandalous on agricultural raw materials … We have to do something about that,” Barnier told a confirmation hearing in the European Parliament.

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

By Richard Beales

NEW YORK, Jan 4 (Reuters Breakingviews) – Lawmakers and bank-bashers have pinned blame for the financial crisis — and in particular the collapse of American International Group — on the credit default swap (CDS) market. Changes to and tighter oversight of the giant market are needed. But action should address real, not imaginary, problems. Reuters Breakingviews offers some advice.

1) Don’t ban CDS instruments. They didn’t cause AIG’s downfall — poor risk management did. AIG built up exposure out of all proportion to its ability to cover losses. It was an old trader’s game: selling out-of-the-money options to bring in what looked like risk-free revenue — until the unthinkable happened and losses swamped all previous profits.

   WASHINGTON, Nov 4 (Reuters) – The chairman of the U.S. House Financial Services Committee is seeking changes to draft legislation for the $450 trillion privately-traded derivatives markets, with the intent of making it harder for banks to avoid trading the contracts on exchanges.

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By Kim Dixon and Karen Brettell
WASHINGTON/NEW YORK, Nov 3 (Reuters) – U.S. regulators should be given authority to determine whether a privately traded derivative contract should be cleared through a central clearinghouse, the chairman of the House Financial Services Committee said on Tuesday.

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By Kevin Drawbaugh and Rachelle Younglai
WASHINGTON, Oct 27 (Reuters) – U.S. regulators would be able to peer into the secretive world of hedge funds and private equity funds under a bill passed by a key congressional committee on Tuesday.
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By John O’Donnell
BRUSSELS, Oct 20 (Reuters) – The European Commission unveiled plans on Tuesday to drive more trading in derivatives onto exchanges and under the gaze of regulators, publishing a raft of proposed new rules.

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