Fed Secretary Tim Geitner

[way2buzy]

I could not find a topic heading that would have been more appropriate. I have a question about a news article regarding a pass on rules given to some companies by Fed Secretary Tim Geithner. The question is simple - - What does this article mean in laymans terms and does it have anything to do with our investment?

Heree is the link;

http://news.yahoo.com/s/ap/20110429/ap_on_bi_ge/us_geithner_financial_overhaul_2

Geithner gives some companies pass on new rules

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By DANIEL WAGNER, AP Business Writer Daniel Wagner, Ap Business Writer – Fri Apr 29, 2:23 pm ET

WASHINGTON – Treasury Secretary Timothy Geithner has decided to let companies continue to trade certain contracts used to guard against swings in currency values outside regulators' view.

New rules require that many such trades occur more transparently, on exchanges where regulators can see them. But Geithner is exempting certain contracts used by companies to hedge currency rates.

The new financial overhaul law authorized Geithner to carve out such an exemption to stricter regulation.

Business groups argue that tighter oversight of such contracts would be costly and unnecessary. But critics, including some regulators, counter that the entire market for financial contracts called over-the-counter derivatives should face stricter supervision.

The value of derivatives hinges on an underlying investment, such as currencies, stocks or mortgages. Speculators using over-the-counter derivatives helped fuel the 2008 financial crisis.

Treasury's top markets official said the contracts already include many of the safeguards imposed by the new rules. For example, information on the price for each contract is available from a number of sources. The contracts often are traded on electronic platforms.

Imposing new rules would mean "introducing an additional process into what is a very well-functioning market today, and you would be putting more steps into the settlement process," said Treasury's Assistant Secretary for Financial Markets Mary Miller.

The swaps that Geithner carved out account for about $30 trillion of the $600 trillion global market for over-the-counter derivatives, Treasury said. The new rules will apply to currency swaps, options and other contracts used for similar purposes.

The decision technically is a proposal. Treasury will accept public comments for 30 days before finalizing the exemption.

Edited April 30, 2011 by sunshinelvr
posted the article

[sunshinelvr]

This article about the same subject may help. Sorry I dont speak this language, I dont know if this helps. Maybe Scooter can translate it

U.S. plans to exempt forex swaps from new rules

By Rachelle Younglai Rachelle Younglai – 2 hrs 25 mins ago

WASHINGTON (Reuters) – In a big win for business, the Treasury proposed on Friday to exempt commonly used foreign exchange swaps and forwards from the most onerous new rules for the derivatives market.

The Treasury Department said that forcing these financial products through clearinghouses and onto exchanges was not necessary because existing procedures in the foreign exchange market mitigate risk and ensure stability.

Any disruptions to this market "could have serious negative economic consequences," the department said.

The business community applauded Treasury's decision and said the government recognized that the products did not pose a risk to the financial system.

Foreign exchange swaps and forwards, which represent about 5 percent of the $600 trillion over-the-counter derivatives market, are used by a wide range of companies to lock in prices as protection against exchange rate fluctuations.

Businesses, big banks and the securities industry had furiously lobbied the Obama administration to exempt the financial instruments from the new rules. They argued, among other things, that clearing requirements would drive up costs and were unnecessary given that most contracts expired after one week.

The Treasury agreed.

"You would be putting more steps into the settlement process for trades that are largely short-term in nature," Mary Miller, the Treasury's assistant secretary for financial markets, told reporters.

CONCERNS WITH EXEMPTION

Democratic Senator Carl Levin said he was concerned the exemption relied on current industry practices that were inadequate and could be changed by the industry unless the exemption was "conditioned upon their remaining in place."

The proposal is open for comment for 30 days. The Treasury's final decision will be issued after that period. Officials said they would not speculate on whether the proposal would change.

Under the Dodd-Frank financial reform legislation enacted last year, the Treasury secretary was given the power to determine whether the narrow subset of foreign exchange derivatives should be tightly regulated.

The rest of the over-the-counter derivatives market will be forced through clearinghouses, which will stand between two parties and assume the risk if one party defaults.

The country's biggest labor federation, the AFL-CIO, criticized the Treasury's plan and said it would create a loophole that could be exploited.

The legislation was aimed, in part, at trying to ensure derivatives no longer pose the type of threat they did during the 2007-2009 credit crisis. Credit derivatives were implicated in the downfall of troubled financial giants Lehman Brothers and AIG.

The Treasury's Miller said the foreign exchange swaps market was different from other derivatives markets and that under Dodd-Frank it would be illegal to use the instruments to evade tougher scrutiny that applies to other derivatives.

The swaps and forwards would also be subject to trade reporting requirements and business conduct standards.

The long-awaited decision was hardly a surprise given Treasury Secretary Timothy Geithner has said the foreign exchange swaps and forwards did not present the same type of risk as other derivatives.

(Additional Gertrude Chavez-Dreyfuss and Wanfeng Zhou in New York, and Dave Clarke and Glenn Somerville in Washington; Editing by Andrew Hay and Dan Grebler)

http://news.yahoo.com/s/nm/20110429/bs_nm/us_financial_regulation_swaps

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