|
By Ronald Fink
While the House Financial Services Committee has dropped a proposed curb on so-called naked swaps, the idea lives on in another panel considering legislation to regulate credit-default swaps and other derivatives.
The House Agricultural Committee, headed by Minnesota Rep. Collin Peterson, has proposed federal securities law be amended to prevent courts from awarding damages for losses due to speculation in derivatives.
By limiting recovery of losses on derivatives to "actual damages," the provision would restore a legal distinction that once existed between speculation and hedging. Under such a change in the law, only those holding an economic interest in the securities of the entity that a credit default swap refers to would be able to sue their counterparties for damages. Transactions where neither party holds such an interest are called "naked" swaps.
Supporters of a curb on damages say it would prevent speculation in derivatives from posing the kind of systemic financial risk that required a $182 billion taxpayer bailout of AIG. Critics say it would reduce companies' ability to manage their risks.
The chairman of the financial services committee, Rep. Barney Frank of Massachusetts, once supported an outright ban on naked swaps but changed his mind after intense lobbying from the banking industry. The current version of that committee's bill, which contains no such limit on court awards for losses on derivatives, was debated in hearings on Capitol Hill on Wednesday morning.
But Peterson has stuck to his position in support of a curb on naked swaps. The "discussion draft" of the bill that emerged from his committee on Oct. 9 contains a provision stipulating that the Securities Exchange Act be amended so that investors cannot bring suit for amounts in excess of "actual damages" on losses from derivatives.
Differences between the two committees' bills need to be ironed out before the House votes on the legislation. But two members of the financial service committee noted at its hearing on Wednesday that the agricultural committee's approach to derivatives regulation might hold sway, though they were referring to provisions for how derivatives would be traded on exchanges.
 |
in In Compliance by 
Subscribe to this comment's feed
