News Flash: Half a Baby *is* Better Than None!

On the 11th, the administration sent to Congress its Solomonic resolution for the lingering over-the-counter derivatives problem (does no one remember that the point in the story of Solomon's proposed baby-hacking is that when you cut a baby in half, it dies?)

The 115-page proposal creates a very broad definition of "swaps" and then carves out a subset of "security-based swaps." Regular swaps are to be regulated by the CFTC and security-based swaps by the SEC. Both agencies are instructed to play nice and write joint rules and joint interpretations or the big, bad Treasury will do it for them.

Standard swaps will be cleared by central clearing agencies and traded on exchanges. Non-standard swaps must be reported. In a nice piece of circular reasoning, the proposal creates an assumption that swaps traded on an exchange are standardized.

For a detailed discussion of the proposal see Sullivan & Cromwell's section-by-section analysis on their Financial Markets Resource Center (a great resource in any event).