Senate Defeats Effort to Weaken Derivatives Legislation
Following a floor speech tonight by Senator Maria Cantwell (D-WA) about the importance of derivatives reform, the Senate defeated 59-39 an amendment that would have greatly weakened derivatives legislation supported by Cantwell and Democratic Senate leaders. The amendment proposed by Senator Saxby Chambliss (R-GA) and backed by other Republican members, sought to water down legislation toughening regulation of the derivatives market. The measure is part of the financial regulatory reform legislation now under consideration in the Senate. The issue of controls over derivatives is a key part of the debate because derivatives played a major role in the financial meltdown of fall 2008. Senator Cantwell has been speaking loudly for months, urging the Senate leadership to push for transparency and tough regulatory oversight of derivatives trading and commodities markets to end abusive trading practices.
Cantwell said she supports the strong derivatives reform language in the bill Democratic leaders sent to the floor for debate.
"This underlying bill gives us the kind of predictability and certainty in the tried and true ways that markets function: With transparency. We're talking about old-fashioned capitalism here," Senator Cantwell said in her Senate floor speech today.The amendment proposed by Republican senators, she said, "does nothing to make sure that we prohibit the excessive speculation that can move the market in a manipulative way."
Cantwell said it is essential that the Senate pass strong derivatives language that closes the loopholes that contributed to the financial crisis.
"What happened in the marketplace is that derivatives were really a very small business, only a few hundred billion dollars in 1999," Senator Cantwell said on the floor. "But we ended up deregulating them, and since then, in this short period of time, it turned into a $700 trillion market. How do you go from that period of time to $700 trillion? You go because we made it a dark market. We basically said, you don't have to have the rules of the road or the regulation or the oversight or the basic things that make this a functioning market."
Watch a video of Senator Cantwell delivering her remarks today on the Senate floor.
As the evidence has mounted of the role derivatives played in causing the financial crisis, Cantwell has advocated moving standardized derivatives onto fully regulated public exchanges and clearinghouses. Loopholes in the House-passed bill could exempt up to 60 percent of the derivatives market from exchange trading and central clearing requirements. Senator Cantwell, along with several of her colleagues, outlined her priorities to create the strongest regulation of over-the-counter derivatives trading in a letter to Senate Majority Leader Harry Reid (D-NV) on April 23rd. Among her priorities are creating a robust mandatory clearing requirement, moving all trades to a transparent exchange or swap facility, and giving the Commodities Futures Trading Commission and the Securities and Exchange Commission the authority to set and enforce strong position limits. Additional provisions are included in the letter. Reid's response is available here.
Cantwell, a leader in the fight to prevent a repeat of the financial meltdown of 2008, helped bring out the tough derivatives language still under consideration in the financial regulatory reform bill on the floor. The derivatives language was proposed by Senate Agriculture Committee Chairwoman Blanche Lincoln (D-AR), whose committee has jurisdiction over derivatives trading. Senator Lincoln first laid out her tough stance on derivatives in a letter on April 13th that respondedto a bipartisan letter sent in January by Cantwell and Senators Dianne Feinstein (D-CA), Byron Dorgan (D-ND), and Olympia Snowe (R-ME), advocating tough restrictions on derivative trading.
Last week, the Senate adopted a Cantwell amendment to prohibit market manipulation in the swaps and commodities market.
See below for more information on Senator Cantwell's efforts to strengthen financial regulations, prevent market manipulation and forestall a recurrence of the financial collapse.
- Senate Passes Cantwell Anti-Manipulation Amendment (May 6, 2010)
- Cantwell, McCain Seek to Restore Glass-Steagall Safeguards by Separating Commercial and Investment Banking (May 6, 2010)
- Cantwell Urges Senate to Pass Strong Financial Reform, Look After Main Street, Not Wall Street (April 27)
- Cantwell Speaks on Senate Floor Regarding Regulating Wall Street (April 22, 2010)
- Experts, End-Users Join Cantwell in Supporting Closing Loopholes on Derivatives Abuses Responsible for Financial Crisis (April 20, 2010)
- Cantwell, End-Users Advocate for Derivatives Reform (February 3, 2010)
- Cantwell-McCain Banking Integrity Act of 2009 (December 16, 2009)
- Legislation subjecting derivatives traders to state gambling regulations (November 10, 2009)
- Derivatives Market Manipulation Prevention Act of 2009 (September 17, 2009)