Regulating derivatives doesn't get as much attention as other pieces of the finance-reform debate, but it's hugely important — a type of derivative called a credit-default swap was at the center of the collapse of AIG, but the derivatives business remains largely hidden from public view.
So a few pieces of derivatives news out of Washington are worth noting:
Peter Roberson, a former Financial Services Committee staffer who went to work as a lobbyist for a derivatives exchange called ICE, won't be allowed to lobby the committee. Chairman Barney Frank said he told the committee staff "to have no contact whatsoever with Mr. Roberson on any matters involving financial regulation for as long as I am in charge of that Committee staff."
Some derivatives are traded on public exchanges now, but many are traded in private deals between financial firms, away from public view. That makes it impossible to get a big picture of what's happening in the derivatives market, and the finance-reform legislation working its way through Congress could require more derivatives to be traded on an exchange. If that happens, ICE could get a lot more business. An ICE spokesman declined to comment.
The head of the SEC said there are "important gaps" in the way derivatives are regulated in the finance-reform legislation. Among other things, she wrote in an op-ed in this morning's Washington Post, new regulations should give regulators more power over derivatives and force more derivatives to be publicly traded on exchanges. She warned that "today's gaps can become tomorrow's crisis."
Meanwhile, back in the Senate, the debate over regulating derivatives has shifted from the banking committee (where negotiations hit an impasse) to the agriculture committee, the WaPo reports. This actually is not as crazy as it sounds. Derivatives are deeply rooted in agriculture, because they allow farmers to protect themselves against the risk of big swings in crop prices.