Democrats clarify derivatives regs after industry outrcy

Democrats are taking steps to clarify a controversial provision in the Wall Street overhaul that sparked concerns among businesses that use derivatives to hedge risks.

Business groups have warned that the wording of the derivatives title could require so-called "end users" of derivatives to post hundreds of billions of dollars of collateral for their trades. The International Swaps and Derivatives Association (ISDA) said this week the collateral requirements would total roughly $400 billion for current market levels.

Earlier versions of the legislation explicitly exempted commercial end users, but business groups said the final conference report language is unclear on the point.

Rep. Collin Peterson (D-Minn.), chairman of the House Agriculture Committee, said Thursday that argument is a "misinterpretation" of the bill. "Nowhere in this section do we give regulators any authority to impose capital and margin requirements on end users," Peterson said on the House floor.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.) wrote a four-page letter this week clarifying the intent of the legislation.

"Congress clearly stated in this bill that margin and capital requirements are not to be imposed on end users, nor can regulators require clearing for end user trades," the wrote.

For derivatives trades that are not cleared through central clearinghouses, Dodd and Lincoln wrote that margin requirements should be placed on the dealer side of the transaction rather than the end-user side.