–Senate Agriculture Panel Chief Says GOP Deriv Plan Is Flawed
–Sen. Lincoln: Must Bring OTC Deriv Market ‘Into The Light of Day’
–Senate Debates Derivatives In Public, Continues Private Talks

By John Shaw

WASHINGTON (MNI) – Senator Blanche Lincoln, the chairman of the
Senate Agriculture Committee, Wednesday strongly defended her package of
over-the-counter derivatives regulatory reforms, saying that attempts to
kill her plan are misguided.

In a speech on the Senate floor, Lincoln said her OTC derivatives
reforms would bring “this completely unregulated market into the light
of day.”

“The time is now … . We must get started,” she said.

Several weeks ago, Lincoln pushed through the Senate Agriculture
Committee an OTC regulatory framework that would require OTC markets to
adopt aspects of the regulated markets such as mandatory clearing
through derivatives clearing organizations and trading on exchanges or
exchange-like facilities.

Her bill has a narrow exemption for commercial “end users” who use
derivatives to hedge against economic contingencies such as fluctuations
in fuel prices, currency and interest rates.

The most controversial features of the package is a provision that
requires a bank that qualifies as a “swap dealer” or a “major swap
participant” to either divest its swap desk or forego access to federal
credit assistance such as the Federal Reserve Board’s discount window of
FDIC deposit insurance.

Senate Republicans have said they favor more disclosure of
derivative swaps and are offering an amendment that removes the language
that prohibits depository institutions from trading derivatives.

Lincoln said the proposed Republican amendment would do little to
bolster regulation of OTC derivatives. She said it’s “riddled with
loopholes” and is designed to defeat reform.

While the Senate is holding a public debate on derivatives reform,
private talks continue on how the Lincoln package might be modified.

Senate Banking Committee Chairman Chris Dodd has said that senators
are still “working” on the derivatives language, but has not indicated
where the talks are heading.

Lincoln is in a tough primary fight in Arkansas to retain her
Senate seat and has run on a “tough on Wall Street” platform.

Her Democratic primary is next Tuesday and there has been
considerable speculation that any agreement to alter her derivatives
language would occur after that primary.

In recent days, Senate Democratic leaders has dropped their
insistence that the financial regulatory reform bill be completed this
week, saying that passage next week is likely.

The underlying Senate regulatory reform bill, largely drafted by
Dodd, establishes a new independent Consumer Protection Bureau at the
Federal Reserve Board, creates a process to liquidate failed financial
firms, sets up a council of regulators to oversee systemic risk in the
economy, establishes a regulatory structure for over-the-counter
derivatives, requires hedge funds that manage over $100 million to
register with the SEC and creates a new office within Treasury to
monitor the insurance industry.

Dodd’s bill has been merged with a Lincoln’s derivatives package.

** Market News International Washington Bureau: (202) 371-2121 **

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