Yesterday, Senator Tom Harkin (D-IA), Chairman of the Senate Agriculture Committee, introduced legislation entitled the Derivatives Trading Integrity Act. The bill is intended to establish “stronger standards of openness, transparency and integrity in the trading of swaps and other over-the-counter financial derivatives” that would lead toward “rebuilding and restoring confidence in the financial system.” Chairman Harkin stated that his bill would “end the unregulated ‘casino capitalism’ that has engendered great risks in swaps trading,” and “bring these transactions out into the sunlight where they can be monitored and appropriately and responsibly regulated.”

Specifically, Harkin’s proposed bill would amend the Commodities Exchange Act (7 U.S.C. 6) to eliminate the distinction between “excluded” and “exempt” commodities and regulated, exchange-traded commodities, and as such, futures contracts for all commodities would be treated the same. The proposed bill also “eliminates the statutory exclusion of swap transactions from regulation” and “ends the Commodities Futures Trading Commission’s authority to exempt such transactions from the general requirement that a contract for the purchase or sale of a commodity for future delivery can only trade on a regulated board of trade.” Effectively, this would mean that all “futures contracts must trade on a designated contract market or a derivatives transaction execution facility.”

With the introduction of this bill, Chairman Harkin seeks to “establish the standards that all futures contracts trade on regulated exchange,” which will work with the CFTC to ensure that “trading on the exchange is fair and equitable and not subject to abuses.”