Lincoln gets tough on derivatives market

Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.) said Tuesday she would pursue a “narrow exemption” in legislation overhauling the multitrillion-dollar derivatives market, vowing to get tough on the Wall Street industry.

“Only commercial firms which are solely hedging their own commercial risks should be able to use some limited exemption,” Lincoln wrote to Sens. Maria Cantwell (D-Wash.), Dianne Feinstein (D-Calif.), Byron Dorgan (D-N.D.) and Olympia Snowe (R-Maine). “It is very clear to me that the opportunities for abuse in this area are readily apparent.”

Lincoln said the legislation would be “surgical” in scope and she said it would crack down on an industry that is dominated by the biggest Wall Street banks. Banks reported record revenues in 2009 of $23 billion, according to the Office of the Comptroller of the Currency.

Lincoln is hoping to capture more than just banks, and she said any “systemically important” firm should fall under the derivatives bill.

Consumer advocates have argued in favor of mandatory exchange trading for all derivatives and have warned of potential abuse with a broad exemption. Financial, energy and agriculture interests have lobbied for an exemption from the legislation, arguing that the regulations could hurt their businesses, with the requirement to post margin for trades. 

Lincoln said she did not agree that exchange trading would be appropriate for all transactions, and said she would give the Commodity Futures Trading Commission (CFTC) authority to decide which swaps to put on exchanges.

Lincoln had been negotiating with Republicans, including Sen. Saxby Chambliss (R-Ga.), ranking member on the committee. Chambliss charged the Obama administration with interfering with the negotiations, and said he could not support Lincoln’s new plan.

This story was updated at 7:40 p.m.