Treasury Takes Hard Line with OTC Derivatives Bill

By Emily Flitter



It was no secret that the Obama administration was gunning for strict regulation of the previously unbridled over-the-counter derivatives markets. But bankers were still caught off guard by the apparent severity of the 115 pages of legislation the Treasury Department released this month. The Treasury’s bill is stricter than the rules under discussion by the House. In addition, bankers and other market participants will have less room to combat the proposal as regulators, lawmakers and the administration maintain a more unified stance on derivatives regulation than on any other area of financial regulatory restructuring. The bill “would significantly change the derivatives market, principally for dealers,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics Inc. “It’s certainly a far-reaching legislative proposal that, because, I think, of the detail and the sophistication of the drafting, will have a lot of impact on the debate going forward.” The section of the plan that concerns them most is the proposed margin and collateral requirements for OTC counterparties. Under the bill, regulators could impose stringent requirements on both parties to trades still carried out over the counter.