Senior Senate Democrat Asks How Treasury Can Support House Derivatives Legislation

In a letter to Treasury Secretary Tim Geithner, Senator Maria Cantwell expressed severe disappointment in Treasury's support for the OTC Derivatives Markets Act reported out of the House Financial Services Committee with what the senator called large loopholes that would allow financial firms to continue unregulated derivatives trading. Specifically, she questioned an exception from the mandatory clearing and exchange trading requirements for standardized swaps when one of the counterparties is not a swap dealer or major swap participant. She also queried the Act's definition of major swap participant, which the senator characterized as so broad as to include a large universe of companies and financial firms and thus also extend to them the exemption from the mandatory clearing and exchange trading requirement. She also decried an exemption in the legislation for foreign exchange trades and dealing on overseas exchanges by US counterparties. Finally, the senator said that empowering clearing organizations rather than their SEC or CFTC regulators to determine which transations should be cleared would essentially allow them to determine which transactions should be executed on regulated exchanges.

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