Taming the Derivatives Tiger

The Obama administration asked Congress yesterday to move quickly on legislation that would allow federal oversight of derivatives like credit default swaps. Geithner said the measure should require swaps to be exchange traded and backed by capital reserves. The adminsitration is also seeking repeal of of major portions of the Commodity Futures Modernization Act of 2000 which kept derivatives mostly unregulated (endorsed, incidentally, by then Treasury Secretary Larry Summers). The new measure would give regulatory oversight to the CTFC and the SEC. ISDA issued its own comments in the wake of the news.

Geithner also stated that the administration would be laying out a comprehensive proposal to overhaul the regulation of the financial system. A centerpiece to the plan will be eliminating the ability of companies to pick the most favorable regulator.

So, will moving derivatives to an exchange help prevent future meltdowns? TMX Group CEO Thomas Kloet believes it can.

The links:

• Paul Kanjorski, the chairman of an influential House subcommittee said the federal government, not the states, should have the primary responsibility for overseeing the insurance industry. he said Congress must address insurance activities as part of the broader overhaul of financial regulations.
  
  
• The SEC moved to impose new rules on money managers to safeguard client holdings in the wake of Madoff's $65B Ponzi scheme. SEC commissioners voted 5-0 today on a proposal to subject about 9,600 investment advisors to annual surprise inspections by independent auditors to make sure they have adequate procedures to protect client assets.
  
  
• The Federal Reserve may revise rules that currently favor the established credit rating agencies. The Fed currently only accepts collateral ranked by the major NRSROs (Moody's, S&P, Fitch) and is conducting its review as the number of NRSROs is increasing.
  

• R.I.P Bill Seidman. The former head of the FDIC and RTC died yesterday in Albuquerque, NM at the age of 88.