A group of sharply divided witnesses appeared before the House Agriculture Committee Wednesday to testify on a sweeping draft bill which would drastically change the landscape for derivatives regulation by requiring mandatory clearing for swaps.

The chief executive officer for the International Swaps and Derivatives Association, a trade group, offered a scathing critique of the proposal, saying that its current wording would "have a disastrous effect for the large majority of these corporations by taking away basic risk management tools."

Others, meanwhile, countered that view, saying the bill will go a long way toward lessening the systemic risk associated with over-the-counter derivatives by requiring centralized clearing for most of the contracts.

"Nasdaq OMX is highly supportive of provisions in Section 13 of your legislation that would protect our financial system and investors by requiring most over-the-counter derivatives to be settled and cleared," said Chris Concannon, Nasdaq's executive vice president of transaction services in prepared remarks. "We believe this section is good public policy and hope to see it enacted into law."

Wednesday marked the second in a series of hearings to debate a bill drafted by House Agriculture Chairman Collin Peterson, D-Minn. The bill is a beefed up version of one that failed to become law last year.

The bill would require the Commodity Futures Trading Commission to set speculative position limits for all commodities and also require the agency to disaggregate and publicly provide position limits collected from index funds.

It also would require mandatory clearing for most over-the-counter derivatives unless otherwise exempted by the CFTC. In addition, it includes a highly controversial provision to ban so-called "naked" credit-default swaps in which investors do not own any of the underlying bonds.

Currently there are already efforts underway in the private sector to offer clearing services for credit-default swaps, including proposals by IntercontinentalExchange Inc. (ICE), CME Group (CME), Eurex and NYSE Euronext. But whether clearing should be mandated still remains a big question.

Johnathan Short, ICE's senior vice president and general counsel, raised similar concerns about the proposed naked credit-default ban that were raised by CME on Tuesday.

"Credit-default swaps perform an important market function in allowing parties to hedge credit risk," Short said in prepared testimony. "The goals of transparency and mitigation of counterparty credit risk and systemic risk can be achieved through central clearing of credit-default swaps...Section 16 would run counter to this goal."

Following Tuesday's hearing, Peterson said he is still not sure what the final draft bill will look like. He said he put certain provisions in the bill, such as the ban, to "engender debate," and while he still plans to keep an open mind, he also didn't appear swayed by arguments that mandated clearing isn't the answer.

"If something is too risky that nobody will clear it...then in opinion, those kinds of things should not be written in the first place," he said,

Peterson plans to have witnesses from the Securities and Exchange Commission, the CFTC and the Federal Reserve testify on the bill next week before it goes to the committee for a markup.

-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com

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