Consensus for derivatives reform-US House chairman
WASHINGTON Feb 4 (Reuters) - Despite objections from the U.S. financial industry, there is consensus for "real steps to improve the transparency and oversight of derivatives markets," the House Agriculture Committee chairman said on Wednesday.
The Agriculture Committee is working on a bill to require most over-the-counter derivatives to be cleared by federally regulated clearinghouses and ban "naked" credit default swaps.
Commissioner Bart Chilton of the Commodity Futures Trading Commission, the U.S. regulator of the futures industry, said he supports the general shape of the bill. He said regulation of naked swaps is "an area worthy of inquiry."
The CFTC, the Federal Reserve and the Securities and Exchange Commission are expected to testify next week on the legislation. Chilton spoke to reporters before the committee opened its second hearing on the proposal.
"Despite the fact that some of our witnesses yesterday took issue with some sections of the draft bill, I believe the consensus is that we need to take real steps to improve transparency and oversight of derivatives markets, whether they are on exchanges or over the counter," said Agriculture chairman Collin Peterson, Minnesota Democrat.
Trade groups say the ban on naked swaps would effectively shut down the CDS market and that mandatory clearing is not practical for some instruments. The House bill would allow an exemption for specialized derivatives if they are sound.
Naked swaps are transactions in which participants run no risk of loss if there is a default. The bill would limit CDS contracts to investors who can show a need, such as owning the underlying bonds.
Credit default swaps have been blamed for spreading the risks of bad assets and amplifying the impact of losses in the financial slump.
Hedge fund manager Michael Masters told the committee he supported mandatory clearing of OTC transactions through regulated exchanges, realistic margin requirements for OTC derivatives and aggregate position limits that apply across all trading venues.
Masters gave copies to the committee of a report, "The 2008 Commodities Bubble," that concluded: "The bubble in crude oil, natural gas and other commodities cost the United States more than $110 billion in 2008, which translates to over $846 for every American household. The effect was to take an already weak and frail economy and push it down the stairs."
Masters and analyst Adam White wrote the report.
Peterson said his aim is for committee approval of the bill by the end of next week. Two other House committees could claim jurisdiction the right to amend it. (Reporting by Charles Abbott; Editing by Andre Grenon)
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