.The Senate Swapped Protecting the People for Protecting Derivatives Traders

May 21, 2010 (LPAC)—Sen. Maria Cantwell, the sponsor, with Sen. John McCain, of the amendment to restore the 1933 Glass-Steagall Act, was organizing Republican Sen. Richard Shelby and Saxby Chambliss to support the bill yesterday, and specifically, to add language making swaps dealers legally liable if they didn’t “clear” trades on a legally recognized clearinghouse, when a messenger from “Old Hob” intervened.

The International Swaps Dealer Association protested that such language would open the floodgates to litigation. With this pronouncement from the deep, the language was dropped, a source close to Cantwell told Newsweek.

As the Financial Reform bill currently stands, nothing states that a swap which does not comply with the statute is illegal; and in fact, the bill actually says the swap cannot be voided. There is no legal consequence for counterparties who enter into uncleared swaps even after a finding by the Commodity Futures Trading Commission or the SEC that the swaps must be cleared. Spokesmen for Shelby and Chambliss refused to comment.

The source says that in Sen. Cantwell’s view, “The bill is a joke. The clearing of derivatives and exchange trading is the heart of the whole bill.”