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House Committees Examine Over-The-Counter Derivatives

July 10, 2009

On the House side of Capitol Hill, a joint committee hearing held Friday addressed the administration's proposal to regulate over-the-counter derivatives. Ag Committee Ranking Member Frank Lucas, R-Okla., told members of the House Agriculture and the Financial Services Committees that no one can argue with the concepts of transparency and accountability, but they must make certain that their actions call for an appropriate level of regulation.

Lucas said these complex markets need better models and methods for oversight and transparency, but he warned to be careful not to overreach and force businesses into very expensive clearing operations that cost capital they do not have, or force them out of risk mitigation altogether. 

He noted that section 13 as currently drafted, which relates to the clearing requirement, will stifle innovation in the over-the-counter market. He said the CFTC needs more authority to waive the clearing requirement so that new and safer products can get to the market in a timely fashion. He said this would recognize that there is a need for customized contracts.

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