Aite Group Releases Opinion on New Derivatives Bill

A new bill being developed by the House of Agriculture Committee may not require clearing of all over-the-counter derivatives, after all. On Wednesday, Chairman Collin Peterson, announced that the bill, currently being drafted, should be completed this week. The announcement goes against his previous position that would have required all OTC derivatives to be cleared by federally regulated clearinghouses. The bill will likely (based on previous iterations) limit hedge exemption to bona-fide hedgers, among other things.

Aite Group senior analyst Paul Zubulake, said in a press release, “There is no need to mandate any centralized clearing of OTC products. The commodity OTC markets have already begun to use the clearing house model as distrust of counterparty balance sheets has forced the market to adapt. The credit markets will follow this route for the same reason. With regard to speculators, tightening up the classifications of hedgers and speculators is long overdue, and different classifications need to be enforced. At the same time, Congress needs to understand that, in order to have liquid and efficient markets, rules must not hinder the participation of speculators. The demonization of speculators needs to end, as any efforts to eliminate them will just drive their business overseas. That is the last thing our economy and the financial markets need.”