WASHINGTON The House Agriculture Committee approved a bill on Thursday to allow federal futures regulators to temporarily suspend U.S. trading of "naked" credit default swaps during market turmoil.
The bill also mandates the clearing of over-the-counter transactions through central clearinghouses unless granted an exemption by the Commodity Futures Trading Commission. The Federal Reserve would be barred from regulating clearinghouses.
It also would give the CFTC, for the first time, the power to file criminal charges against market violators.
Committee members approved the bill on a voice vote. Three other committees can claim jurisdiction on parts of it, so it was unclear when a floor vote may happen.
"This is the first step in a long drawn-out process. We could get in a war," said Agriculture Committee chairman Collin Peterson, referring to the jurisdictional tangle and competing proposals to overhaul the U.S. financial regulatory network.
Before approving its bill, the Agriculture Committee revised provisions on credit default swaps and on OTC clearing.
Members refined the authority of the CFTC to apply solely to "naked" CDS related to securities barred from short-selling by the SEC. The suspension would end when SEC removed its ban and would not apply to investors such as owners of underlying bonds and who buy a CDS to reduce their risks.
A holder of a naked swap does not own the underlying bond.
They also voted for mandatory clearing of OTC transactions unless an exemption is granted. As proposed, the bill called for clearing, but allowed the alternative of reporting OTC activity to CFTC. Iowa Democrat Leonard Boswell said too many traders might decide to report rather than go through clearing.
"We want as much of these things to be cleared as can be cleared," said Peterson, who supported the change.
Exemptions would be allowed for highly customized or infrequently traded instruments. Peterson said CFTC would be encouraged to standardize the exemption process.
Also in the bill are anti-speculation sections aimed at energy and agricultural futures contracts. They also were in a bill that passed the House, 283-133, last September.
They require foreign exchanges to adopt reporting and disclosure rules that mirror U.S. standards, require position limits on agricultural and energy contracts and allow CFTC regulation of look-alike OTC energy and agricultural contracts.
(Reporting by Charles Abbott; Editing by Andre Grenon)