Major derivatives exchanges intend to tell lawmakers Tuesday they are generally supportive of the key concepts in the Obama administration's plan to regulate the derivatives market. But some still have reservations about imposing a government mandate on clearing and exchange trading.

In prepared testimony before the House Financial Service's Capital Markets Subcommittee, CME Group Inc. (CME) Executive Chairman Terrence Duffy plans to suggest that the U.S. government should incentivize clearing without forcing it upon companies. With a mandate, he will warn, companies may simply move to a less-regulated market overseas.

"Our support of central-counterparty clearing and opposition to a government mandate is not inconsistent," he will say. "If the over-the-counter dealers do not embrace clearing, they can easily transact in another jurisdiction and cause significant damage to a valuable domestic industry."

The Obama administration last month introduced a comprehensive plan to shed more light on over-the-counter derivatives and the firms that offer them. The proposal aims to avert another financial crisis, which some believe was caused in part by large firms that recklessly traded exotic financial products like credit-default swaps out of regulators' sight.

The Obama plan would subject derivatives dealers to strict capital and margining requirements and force them to report certain data to regulators.

It would also force all standard over-the-counter products to go through clearinghouses, which guarantee trades and soften the market impact in the event of a default. Those standard products would also need to be traded on exchanges in an effort to make prices more transparent.

The proposal doesn't seek to force clearing and exchange trading of customized products, but it would still subject them to regulation by requiring data about the trades to be reported to regulators. Companies like CME, IntercontinentalExchange Inc. (ICE), NYSE Euronext (NYX) and others stand to gain financially from the Obama plan, which would likely boost their volumes and even give their clearinghouses a say over which contracts must be cleared.

CME and NYSE both plan to offer clearing for credit-default swaps, and a unit of ICE has already cleared over $800 billion in credit-default swaps since its launch in March without a government mandate.

But some exchange executives warned of any move that might kill the over-the-counter market, such as one bill introduced by Sen. Tom Harkin, D-Iowa, which seeks to put all derivatives onto exchanges. "Forcing all over-the-counter derivatives to be cleared and traded on exchange would likely have many negative unintended consequences for the markets as a whole," ICE Chief Executive Jeffrey Sprecher plans to tell lawmakers. Sprecher's testimony doesn't specifically address his views on a clearing mandate, although the exchange has generally not supported any sort of government mandate.

CME's Duffy plans to offer lawmakers Tuesday an alternative to mandated clearing, saying instead the government should give "favorable capital treatment to over-the-counter dealers that clear."

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

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