By Matthew Leising
June 29 (Bloomberg) -- U.S. lawmakers vowed to fix a technical error in the financial overhaul bill that could exempt more than 90 percent of swaps from new trading mandates if not corrected.
The legislation, approved last week by a House and Senate conference committee, requires swaps that are to be sent to clearinghouses to trade on exchanges or swap execution facilities. The definition of swap execution facility only refers to “security-based swaps,” a segment of the $615 trillion in private derivatives that totals no more than 5 percent of the market.
“This is a mistake that we have caught and it will be fixed,” said Steve Adamske, spokesman for the House Financial Services Committee, whose Chairman, Barney Frank, Democrat of Massachusetts, presided over the conference committee negotiations. The bill’s language will be changed before the House and Senate vote on the measure this week, Adamske said.If unchanged, a swap execution facility would capture “a very small fraction” of trades in the market, said Craig Pirrong, a finance professor at the University of Houston. “Only about 8 percent of the notional value would have to go through a SEF and the bulk of the business -- interest rates and foreign exchange -- would not.”
Congress is scheduled to vote this week on the sweeping changes to bank regulations after the collapse of the housing market caused the worst recession since the 1930s and the loss of more than 8 million U.S. jobs.
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