Capital Briefs: Regulators Would Leave OTC Derivatives Alone

legislation keeping the government's hands off the over-the-counter derivatives market.

Last year, former Chairwoman Brooksley Born had proposed the Commodity Futures Trading Commission supervise this class of derivatives, which primarily includes swap agreements, options, and certain hybrid products. But banking and securities regulators and financial services industry officials were opposed, saying it could drive the $80 trillion business to unregulated overseas locations.

After more than a year of study, the President's Working Group on Financial Markets -- which includes the Treasury secretary and the CFTC, Federal Reserve Board, and Securities and Exchange Commission chairmen -- issued a report Tuesday that recommends excluding from regulation such transactions among financial institutions, large businesses and other entities, as well as individuals with at least $25 million of investments.

"The sophisticated counterparties that use OTC derivatives simply do not require the same protections...as those required by retail investors," the report said.

Among its other recommendations, the working group favored letting sophisticated investors trade electronically without oversight and making technical changes in the law to accommodate new banking and securities products that are partially derivatives.

Nine industry trade groups, including the American Bankers Association and the International Swaps and Derivatives Association, issued a statement endorsing the recommendations. "The ability to pursue these activities within a clear legal framework in the United States is of vital economic interest," the statement said. -- Dean Anason