House Financial Services Committee Chairman Barney Frank (D., Mass.) said Thursday he plans to strip provisions from a House derivatives proposal that would allow foreign currency contracts to evade regulations.
The proposed law would force many types of contracts to be processed by clearinghouses, which guarantee trades, and to be executed on regulated trading venues. Two slightly different versions of the measure were approved last month, one by Frank's committee and another by the House Agriculture Committee. But while those bills would capture a wide array of products, from credit-default swaps to interest-rate swaps, they both carved out exemptions for foreign currency forwards and foreign currency swaps.
Commodity Futures Trading Commission Chairman Gary Gensler has been urging lawmakers to abandon exemptions for foreign currency products, since as early as August. But Frank said that Gensler's past comments on the subject were not the primary reason for the change of heart.
"It was something we weren't paying attention to on the first go-round," Frank said, adding that the Treasury Department brought it to his attention.
Frank said that he and House Agriculture Chairman Collin Peterson (D., Minn.) are "very, very close" to reaching an agreement on how to merge their two derivatives bills and come to terms on a few differences.
Those differences center around things like structuring clearing exemptions for major swap traders and how the Securities and Exchange Commission and the CFTC would resolve jurisdictional disputes.
The House Financial Services bill, for instance, prevents companies from utilizing clearing exemptions if their swap contracts pose a major risk to counterparties, while the House Agriculture bill eliminates the exemption if a company's contracts pose threats to the broader system as a whole, Frank said.
Peterson "has indicated he agrees with our version," Frank said.
The bill will also be changed to make sure regulators at the CFTC and SEC make decisions on what should be cleared - and not the clearinghouses, he added.
Frank and Peterson have been meeting recently to discuss ways to merge their bills. A spokesman for Peterson on Wednesday had declined to comment on the status of their talks.
-By Sarah Lynch, Dow Jones Newswires; sarah.lynch@dowjones.com