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Derivatives trading a target of overhaul

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Bill Radke: The financial overhaul bill is scheduled to hit the Senate floor today. This is the legislation designed to prevent another financial crisis. Taking center stage in the debate: derivatives, those complex investments blamed for some of Wall Street’s problems. Marketplace’s Nancy Marshall Genzer has our story.


Nancy Marshall Genzer: Derivatives get their name from the fact that their value is derived from something else — say, corn. A derivative could be a contract to sell corn at a certain price in the future. Or, in the case of the financial crisis, securities made up of shaky subprime mortgages bundled together.

Now, Senate Banking Committee Chairman Chris Dodd has reportedly agreed to include a provision on derivatives in the financial overhaul. It would require banks to spin off their derivatives business. But Dodd may not even have enough votes to start debate on the bill later today. Dodd spoke yesterday on NBC:

Chris Dodd: We can’t take care of everything in the bill; obviously our colleagues are going to want to be heard.

Alabama Senator Richard Shelby is the ranking Republican on Dodd’s committee. He says he doubts the bill will make much progress today. If the Senate passes a financial reform bill, it will have to be merged with legislation passed in the House late last year. Differences will need to be ironed out. The House bill calls for an independent consumer protection agency.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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