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Regulation Battles Heat Up Over Derivatives and Ratings Agencies

Emboldened after paying back bailout money, JPMorgan Chase is fighting regulation of the derivatives market, the Wall Street Journal reports. Derivatives are the complex bets that investors make about how the price of something else, like mortgages or commodity markets, will perform. The bank supports regulation to send standard derivatives through an industrywide clearinghouse, which guarantee payment, but the Journal says JPMorgan opposes the idea of trading on an open exchange, which forces regulation on profitable customized derivatives.

Also this morning, as part of the government's increased scrutiny of derivatives, the Justice Department is investigating possible antitrust violations by a data warehouse owned by Wall Street firms that collects and distributes pricing information on credit default swaps, which allow banks to hedge against the risk that creditors will default.

On another front, in congressional testimony on Tuesday, SEC Chairwoman Mary Schapiro said she wanted greater authority to regulate rating agencies, which have been criticized for giving triple-A ratings to risky mortgage-backed securities and other financial products, Housing Wire says. (Reports are also out today that CalPERS, the giant pension fund for California state employees, filed a lawsuit against the three major rating agencies over what it called "wildly inaccurate and unreasonably high" ratings.) Schapiro is pushing for greater disclosure of rating methodologies as well for limits on firms' ability to "shop" around to different agencies for the best investment rating. The ratings agencies have generally escaped a full overhaul under the Obama administration's regulatory plan.

Other morning links:
Regulators Near Deal on Package to Save CIT (WSJ ($))
An Auto-Parts Maker Fades in the Fallout From Detroit (WaPo)
NY AG May Press for Rattner Settlement (AP)
Obama Mulls Rental Option for Homeowners: Sources – Reuters
U.S. Mulls Temporary Loan for CIT: Source (Reuters)