WASHINGTON — A new key player in the Senate's push to regulate derivatives could bring the Senate Agriculture Committee in line with the Obama administration's vision of how strict the new rules should be.
Sen. Blanche Lincoln, D-Ark., is to succeed Sen. Tom Harkin, D-Iowa, as chairman of the panel in a move that is likely to please both House Democrats and members of the banking industry.
Lincoln is seen as having a more moderate, pro-business stance; a solid working relationship with the two most senior members of the Senate Banking Committee, and a history of engagement on derivatives.
"Senator Lincoln is aware of and knowledgeable about derivatives issues, and we believe she will be a constructive participant in the legislative process," said Cory Strupp, the managing director of government affairs at the Securities Industry and Financial Markets Association.
Industry lobbyists pointed to Lincoln's voting record against the majority of Senate Democrats on legislation that would have closed loopholes in energy trading rules after the Enron scandal. Beginning in 2002, Sen. Diane Feinstein, D-Calif., introduced several amendments to a commodities law that would have brought energy swaps onto regulated exchanges. Lincoln voted against all of them. Lobbyists said the moves demonstrated her understanding of derivatives markets.
Michael Greenberger, a professor at the University of Maryland Law School and a former official of the Commodity Futures Trading Commission, said that Lincoln has probably had a change of heart since voting against the Feinstein amendments.
Such a shift in her views might echo those of the current CFTC chairman, Gary Gensler, who spent several years opposing derivatives regulation before declaring recently that derivatives markets should be tightly controlled.
Lincoln's views now, he said, are simply in line with the Obama administration's goals and those of Democrats in the House. On Wednesday, shortly after the announcement that she would lead the Agriculture Committee, Lincoln expressed support for a small exception to a proposed rule to bring over-the-counter derivatives onto central clearing platforms and exchanges. There is a "small, narrow place" for OTC derivatives, she told Reuters.
Harkin, by contrast, had proposed to the committee this year a complete ban on OTC derivatives.
"What we are seeing is an understanding of those companies that need to use these markets for commercial hedging purposes," Greenberger said.
Recent proposals from House Democrats and the Obama administration allowed for some OTC derivatives to continue to be traded individually, but Harkin's bill would have required all derivatives to be exchange-traded, with the prices of contracts announced before the trades were executed so that customers could choose the best price and banks offering the contracts would have to compete.
Banks feared such a rule, complaining that it would drive smaller users out of derivatives markets and privately worrying that it would hurt profit margins by driving down the prices they could charge on derivatives contracts.
Lincoln is also said to have good working relationships with both Sen. Chris Dodd, the chairman of the Senate Banking Committee, and the committee's ranking Republican, Sen. Richard Shelby. That may be key as the panels try to reconcile overlapping jurisdiction on the agencies that will be charged with regulating derivatives: the CFTC and the Securities and Exchange Commission.