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Economy
In reply to the discussion: STOCKMARKET WATCH -- Wednesday, 11 July 2012 [View all]Demeter
(85,373 posts)6. Big Dealers Sweat as Swaps Face Reckoning
http://online.wsj.com/article/SB10001424052702303292204577517272595067072.html
In a potential setback for large financial firms, regulators are expected to vote Tuesday on a rule requiring banks with more than $10 billion in assets to trade swaps through a central clearinghouse, according to a person familiar with the rule. The vote will be accompanied by a separate ruling on the precise definition of swaps, the financial contracts at the heart of the 2008 credit crisis. That definition will set in motion a series of other rules affecting trillions of dollars of financial contracts.
The voting at the Commodity Futures Trading Commission "starts the scramble to the finish line," said Joel Telpner, a lawyer at Jones Day who specializes in derivatives. "It's the trigger for moving forward with the next phase" of the Dodd-Frank financial overhaul passed by Congress in 2010. The CFTC's proposed clearinghouse rule would force banks with more than $10 billion to post extra cash to back their swaps deals, a requirement for all clearinghouse clients. Critics of the requirement have said it would hurt the economy by forcing firms to tie up cash they could use for retail or business loans, and banks have pushed for a wider set of exemptions.
The rule's backers say it will provide a cushion for firms that could suffer big losses on their swaps deals, as well as to the firms' counterparties. Most banks in the past traded swaps on the so-called over-the-counter market and often didn't post collateral to back their deals. The CFTC, which regulates a large portion of the derivatives market, will also propose exempting cooperatives such as farm credit unions from the clearinghouse requirement, as long as their members meet certain financial requirements, according to the person close to the agency. Lawyers and analysts said Monday that they expect the commission to approve the proposals. The Securities and Exchange Commission unanimously approved a similar set of rules for swaps on Friday...The exemptions aren't a surprise. Still, the $10 billion limit was the subject of fierce debate. Some banks had pushed regulators to raise the limit on assets to $50 billion, which would have drastically reduced the number of firms covered by the law. Others said that all banks should be required to clear their swaps trades.
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In a potential setback for large financial firms, regulators are expected to vote Tuesday on a rule requiring banks with more than $10 billion in assets to trade swaps through a central clearinghouse, according to a person familiar with the rule. The vote will be accompanied by a separate ruling on the precise definition of swaps, the financial contracts at the heart of the 2008 credit crisis. That definition will set in motion a series of other rules affecting trillions of dollars of financial contracts.
The voting at the Commodity Futures Trading Commission "starts the scramble to the finish line," said Joel Telpner, a lawyer at Jones Day who specializes in derivatives. "It's the trigger for moving forward with the next phase" of the Dodd-Frank financial overhaul passed by Congress in 2010. The CFTC's proposed clearinghouse rule would force banks with more than $10 billion to post extra cash to back their swaps deals, a requirement for all clearinghouse clients. Critics of the requirement have said it would hurt the economy by forcing firms to tie up cash they could use for retail or business loans, and banks have pushed for a wider set of exemptions.
The rule's backers say it will provide a cushion for firms that could suffer big losses on their swaps deals, as well as to the firms' counterparties. Most banks in the past traded swaps on the so-called over-the-counter market and often didn't post collateral to back their deals. The CFTC, which regulates a large portion of the derivatives market, will also propose exempting cooperatives such as farm credit unions from the clearinghouse requirement, as long as their members meet certain financial requirements, according to the person close to the agency. Lawyers and analysts said Monday that they expect the commission to approve the proposals. The Securities and Exchange Commission unanimously approved a similar set of rules for swaps on Friday...The exemptions aren't a surprise. Still, the $10 billion limit was the subject of fierce debate. Some banks had pushed regulators to raise the limit on assets to $50 billion, which would have drastically reduced the number of firms covered by the law. Others said that all banks should be required to clear their swaps trades.
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