DerivAlert Blog

Sen. Lincoln Proposes Tough Legislation for OTC Derivatives Markets

In a move to bring transparency to the OTC derivatives market, lower market risk and limit future bailouts of financial institutions, Sen. Blanche Lincoln, D-Ark., Chairman of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, last week revealed a new bill that could be the toughest piece of financial reform legislation introduced to date.

Sen. Lincoln's bill - The Wall Street Transparency and Accountability Act - is more far-reaching than proposals from both the Obama administration and the House of Representatives. Among other things, the bill would prohibit large financial institutions dealing in risky derivatives from receiving any financial assistance from the Federal Deposit Insurance Corporation (FDIC) or the Federal Reserve. The institutions would be forced to spin off their swap dealer desks or be barred from getting any bail-out funds, according to the bill.  

However, the bill also mandates certain clearing and trading requirements and real-time reporting of derivative trades. In the Committee's view, driving this OTC flow to central clearing houses will lead to more market transparency.  This will supplement the pre-trade transparency that is already being provided by trading venues like Tradeweb.  It remains to be seen whether The Wall Street Transparency and Accountability Act will pass in its current form. The Senate Agriculture Committee will hold a mark-up of the bill this week.