WASHINGTON — In a sign that Republicans are serious about passing a bill to revise the laws governing derivatives transactions, Majority Leader Richard K. Armey met Tuesday with representatives of three House committees — each pushing different versions of the same bill — and urged them to hammer out a deal.

A spokeswoman for Rep. Armey said, “He pulled them together to say, ‘Look we need to get this done this year, so let’s wrap it up.’ ”

She added that Rep. Armey believes that the differences between the competing bills can be resolved by Thursday, in time to schedule a vote on the House floor next week.

The House Agriculture, Banking, and Commerce committees have passed versions of a bill that would modernize the Commodity Exchange Act. Of the three, the Banking Committee version, sponsored by Chairman Jim Leach is most popular with the financial services industry because it would provide so-called legal certainty for swaps transactions. Swaps and other over-the-counter derivatives are private agreements under which two parties agree to exchange the risk on certain assets as a hedge against loss.

Bankers have expressed concern that because swaps bear a strong resemblance to futures the Commodity Futures Trading Commission might assert regulatory authority over them. This would create a huge problem for U.S. banks — which held swaps with more than $20 trillion in notional value at the end of June — because futures are legal only if they are traded on an exchange.

If the CFTC were to successfully argue that swaps are futures the legal enforceability of swaps could be in jeopardy, because they are not traded on an exchange but are negotiated on an individual basis.

The House Banking bill would explicitly bar the CFTC from regulating swaps. Rep. Leach said in an interview with American Banker last month that passing a bill that would provide legal certainty for swaps was his top priority during his final month as committee chairman.

Rep. Leach’s bill is also the most likely to satisfy several requirements laid out by Senate Banking Committee Chairman Phil Gramm. The Texas Republican told reporters last week at the American Bankers Association’s annual convention that legal certainty for swaps is one of his central concerns and added that a bill that protects swaps only from regulation by the CFTC would not go far enough. He wants the Securities and Exchange Commission to explicitly be barred from regulating swaps as well.

“Right now, the uncertainty is about the CFTC exerting some supposed authority over swaps and casting doubt on their validity. But if the CFTC is banned — regulation doth abhor a vacuum — what is to keep the SEC from coming in and doing exactly the same thing? Once that is fixed then we are really going to begin in earnest to try to pass this bill. But I’m not getting on board until that’s done.”

Sen. Gramm said that he would prefer a bill in which the SEC and the CFTC have no jurisdiction at all over swaps, but he has suggested a compromise under which the SEC would have the authority to intervene to protect consumers from price manipulation or fraud.

“That’s a good compromise. I think they ought to take it,” Sen. Gramm said.

Swaps are not the only contentious issue raised by the competing bills. Also being debated is the repeal of the Shad-Johnson accord, which for 18 years has barred the trading of futures contracts based on single stocks.

The issue had been holding up all three versions of the bill, as the CFTC and the SEC debated how to regulate them. A deal between the agencies, announced Sept. 17, apparently cleared the way for the Shad-Johnson repeal, although it raised loud objections from stock and futures exchanges.

Administration officials have shown a high degree of support for updating derivatives rules. The CFTC-SEC deal was brokered by Treasury Secretary Lawrence H. Summers, and in a meeting with lobbyists last week other Treasury officials said the administration was committed to lobbying lawmakers to pass a bill this session modernizing swaps and other derivatives trading.

Treasury Assistant Secretary Lewis A. Sachs reiterated the administration’s position on Tuesday. “It would be unfortunate if we were to miss this historic opportunity to modernize the regulatory structure of our derivatives markets,” he said during a speech in New York.


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