Dodd, Lincoln announce agreement on reform package

Key Democrats have reached an agreement to include major provisions of a bill to regulate the over-the-counter derivatives market into a larger proposal on financial regulatory reform. 

Senate Banking Chairman Chris Dodd (D-Conn.) and Senate Agriculture Chairwoman Blanche Lincoln announced on Monday that the bill will make the market transparent with real-time price reporting, lower systemic risk by requiring mandatory trading and clearing of swaps through a clearinghouse and require transactions to be traded on a regulated exchange. 

"We have taken the strongest provisions from our two bills," Dodd said in a statement. "Under this agreement we will see derivatives moved through clearinghouses, traded on exchanges and facing tough capital and margin requirements that will help stop Wall Street from gambling with our financial security."

The measure would seek to prevent taxpayer-funded bailouts, prohibiting the Federal Reserve and the FDIC from providing any federal funds to help a failing financial institution and allow regulators to punish bad behavior.

The plan also closes loopholes to escape regulation and allows businesses and manufacturers who use the markets to continue to do so. 

Under the bill, swap dealers also will have a fiduciary duty in interests related to the pension funds of cities and states. The measure also regulates the $60 trillion foreign exchange swaps like other Wall Street contracts.

To read the legislative text, click here.