The Senate's making noises like it's almost done with the big finance-reform bill; a vote to end debate is scheduled for later today. But some important details are still pretty murky.
One area that's still in play is reform of derivatives, financial tools that businesses can use either to protect themselves against risk, or to make financial bets. Derivatives played a central role in the financial crisis, because they allowed companies to take on lots of risk without setting aside cash to protect themselves against potential losses.
The Senate bill is certain to change the derivatives landscape. But there's lots of last-minute jockeying over just what the new landscape will look like.
Here are two central questions that are still unanswered:
1. Will banks get to stay in the derivatives business?
The nation's biggest banks are also the biggest players in the derivatives business. The current bill would require banks to spin off their derivatives-trading businesses into separate units. The idea is to move the risk associated with derivatives away from banks.
Banks, which make lots of money selling derivatives contracts, have argued that this would make it harder for them to serve their customers. Opponents have also said that the measure could push the derivatives business overseas, to markets where there's less regulation.
Chris Dodd on Tuesday introduced an amendment that would likely have allowed banks to keep their derivatives desks. But the WSJ is reporting this afternoon that Dodd will abandon the amendment.
2. How many exemptions will there be?
Derivatives are now traded "over the counter." That basically means that one banker calls another, and they make a deal. The bill would require derivatives to be traded through a central clearinghouse, with prices posted on an exchange.
The clearinghouse would guarantee trades, so if one party to a deal went bankrupt, the other party wouldn't have to take a loss. The exchange would mean that the prices of derivatives would be more transparent.
But some businesses that use derivatives to hedge risk, rather than to make financial bets, have said they should be exempt from the new rules.
Under the current bill, about 10 percent of derivatives trades would be exempted from the new rules, according to Michael Greenberger, a University of Maryland law professor and derivatives expert who has discussed the bill with some Senate Democrats.
But last-minute deal-making in the Senate could vastly expand the exemption, to cover as much as 60 percent of trades, Greenberger told me.
For more on derivatives reform, see editorials from this morning's New York Times, which discusses some of the unanswered derivatives questions, and Wall Street Journal, which looks at what would happen if the derivatives clearinghouse ran out of money.