Here We Go Again: Peterson's New CDS Bill

Rep. Collin Peterson, Chairman of the House Agriculture Committe, has introduced the final version of the Derivatives Markets Transparency and Accountability Act of 2009 (H.R. 977). The draft bill included an absurb attempt to ban so-called "naked" credit default swaps (though the bill was so incompetently drafted that it wouldn't actually have banned naked CDS).

The final version dialed down the crazy a bit, and now simply permits the CFTC, with the President's approval, to suspend trading in CDS if "the public interest and the protection of investors so require." Even in the (highly) unlikely event that this bill ever becomes law, the only way the CFTC and the President would ever suspend trading in CDS is if there's another panic and the short-selling ban is reinstituted.

The bill would also require all OTC transactions to either:

1. Be settled and cleared through a CFTC-regulated derivative clearing organization (DCO) or, depending on the contract, through an SEC-regulated clearing agency; or
   
   
2. Be reported to the CFTC or other approved agency.
   

Here's the catch: if you choose to report the OTC transaction to the CFTC instead of using a clearinghouse, the CFTC is required to impose "a net capital requirement that is comparable to the net capital requirement that would be associated with such a transaction were it cleared." So if this bill were to become law, all OTC transactions would be subject to CFTC-established net capital requirements.

Of course, it's highly unlikely that Peterson's bill will ever become law—Collin freaking Peterson isn't going to write the new financial regulations—so this is all just academic.