Laws for OTC derivatives crackdown are ready

Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are drafting laws for OTC derivatives crackdown proposed by Obama administration on May 13. Shadowy OTC derivatives market according to administration has widely been implicated in the credit crisis.

The sources familiar with discussions at the agencies informed that the SEC and CFTC can split oversight of OTC derivatives under the legal language they are working on for eventual submission to Congress. The merge of these two large agencies will not happen as it was planned in the beginning, as a source familiar with the administration's thinking said.

According to one source, SEC possibly will take charge of regulating credit default swaps, a type of OTC derivative, for publicly traded companies. The administration and congressional Democrats are charged by tightening the rules for banks and markets in order to prevent financial crisis repetition.

Reforms package is expected to be unveiled on June 17 by President Barack Obama. It emphasizes a need for bringing the OTC derivatives market under stricter regulation with more conservative capital, reporting, etc. A key feature of the administration's plan is moving more OTC derivatives trades through central clearinghouses or, in the case of standardized instruments, onto exchanges.