WASHINGTON - U.S. Sen. Blanche Lincoln (D-AR), chairman of the Senate Agriculture Committee, said on Tuesday that she plans to offer a tougher measure on derivatives than what has already been proposed in a financial reform bill approved by the Senate Banking Committee last month, and passed by the House last year.

According to The New York Times, Lincoln??s measure would require nearly all users of derivative contracts "to trade on centralized exchanges" and possibly order banks "to segregate their business in derivatives into separate subsidiaries."

Lincoln commented: "Proposals that I have seen from the administration have not gone far enough to prevent bailouts of 'too-big-to-fail institutions' and could contain loopholes," notes Congress Daily. "If we pass reform, it needs to be real reform. My proposal will go further than any other congressional or administration proposal to prevent future bailouts."

Congress Daily adds that Lincoln??s proposal would "bring foreign exchange swaps under the regulation; prohibit major swap dealers from receiving federal aid during a crisis; require dealers to have a fiduciary duty to local and state governments, pension plans and endowments; and allow regulators to take action against dealers if they knowingly engage in a transaction with another party to defraud investors."

Additionally, the news source notes that the bill would require "mandatory exchange trading provisions...requiring a swap to trade on a regulated exchange if it is deemed required to clear by the CFTC [Commodity Futures Trading Commission]."

In March, NACS joined the Commodities Markets Oversight Coalition (CMOC) in a letter (PDF) to Lincoln and Sen. Saxby Chambliss (R-GA), ranking member of the Agriculture Committee, commending them for their work on legislation to reform the derivatives markets, and calling on them to include specific provisions to protect commodities markets from excessive speculation and abuse.

NACS and coalition members expressed concern that federal regulations governing the commodities futures markets have not kept pace with the changing behavior of investors in these markets over the years.

NACS and CMOC asked the senators to include the following provisions:

• Mandatory exchange trading for standardized derivatives contracts to ensure adequate transparency and federal oversight, and to reduce systemic risk.
• Mandatory clearing requirements for all other contracts that are not being utilized by bona-fide commercial hedging interests to manage risks, but rather by swap dealers, banks, or other purely financial market participants.
• A narrow end-user exemption to clearing and collateral requirements that will allow bona-fide non-financial hedgers continued flexibility and choice in hedging products; however this exemption should be written so as to avoid any new "loophole" to truly non-physical market participants.
• Additional authorities to the CFTC to establish speculative limits on all markets and in the aggregate across all markets, and to access activity on foreign boards of trade that allow U.S. access or that trade derivatives on commodities destined for U.S. delivery.
• New enforcement authorities to the CFTC so regulators may prosecute "reckless" manipulation in the same manner as its sister-agency the SEC.
• Additional financial and personnel resources should also be afforded federal regulators in order to implement and enforce new mandates and authorities.