US revamps derivatives trading norms

The House of Representatives Financial Services, by a 43-26 margin, approved a key part of President Barack Obama’s drive to overhaul US financial rules even as major US banks posted stronger-than-expected profits.

The new rules, imposed on a largely unpoliced market, aim to prevent the kind of financial chaos that occurred after the collapse of big financial firms involved in derivatives last year, Lehman Brothers and insurer AIG.

Among the most controversial derivatives are credit default swaps, which are a form of insurance against a default in some types of securities. The new regulations — which face stiff industry opposition and must still clear the full House of Representatives and the Senate — include a requirement that most financial institutions that trade derivatives have cash reserves to cover losses, and that most trades go through regulated exchanges. The vote came as US financial heavyweights Goldman Sachs and Citigroup posted better-than-expected results.