Derivatives are financial products—such as corn futures or stock options—whose values depend on the values of underlying investments. Companies use them to hedge against risks, such as interest rate swings or oil price spikes. Derivatives also became vehicles for speculation and helped trigger the financial crisis.
Dodd and ranking GOP member Richard Shelby earlier appeared together on NBC’s “Meet The Press”, where they indicated the vote Monday would play out on party lines unless talks yielded a breakthrough.
Shelby said the two sides "were conceptually very close," echoing a description used by one side or the other in what has been almost six months of talks meant to etch a bipartisan deal.
Their appearance came after talks between staffs appeared to yield little progress Saturday even as it became known that one moderate Republican supported tough measures to reign in over-the-counter derivatives trading. Talks will continue today.
If a suitable compromise is reached it will very likely influence the outcome of a Monday afternoon floor vote to decide whether to end debate on the existing bill, drafted by Dodd about a month ago.
Under Senate rules, Democrats need 60 votes to proceed, but GOP leader Mitch McConnell has indicated all 41 senators in his party are prepared to vote against what is known as a cloture vote, thus making the reform bill vulnerable to a filibuster.
Snowe’s disclosure—outlined in a Friday letter to Majority Leader Harry Reid and a a press release later—has stirred some speculation that she might break with the party vote, something she has done in the past
Though the Maine Republican may not be prepared to do that Monday, her position on derivatives might embolden the Democrats in calling a second vote in the near future—as sources say it ithey are seriously considering—giving Snowe a second chance.
The derivatives issue is shaping up to be a tricky one for both parties. Snowe’s position is tougher than what Dodd has written into his bill but weaker than that of a measure crafted by Senate Agriculture Committee chairman Blanche Lincoln of Arkansas, which the panel approved—with the support of one GOP member—last week.
Republicans generally want any derivatives regulation to provide an exception for private companies that may want to use the financial product as a hedge. Though some Democrats are opposed to such an end-user exception, the majority—including Dodd—is thought to be willing to accept it so long as the provision gets through the creation of a new system, including trading and clearing procedures.
Lincoln’s proposal, however, would essentially keep banks out of the market, effectively decreasing risk and volatility.
Where Snow stands exactly is unknown but she did say she wants to begin with "the strongest proposal we can craft."
There seemed to be some grounds for optimism on the derivatives issue during talks Saturday, bur as the day wore on that seemed to fade.
Senate aides are also thought to be haggling over the new consumer financial protection agency, which would oversee financial products, such as mortgages.
Having apparently lost a battle to prevent the agency from having administrative and enforcement powers along with rule-writing ones, Republicans are now trying to curb its impact in two other ways, according to sources.