The Obama administration achieved one small step Thursday, successfully passing legislation that would guarantee oversight of the financial derivatives market. This bill, passed by the House Financial Services Committee on a 43-26 vote, would be the first time the market would be forced to rein in this multi-trillion-dollar industry.

    This bill is the first in a series of steps toward the mammoth task of remaking America's financial system following the financial crisis last year. Financial derivatives, the most notorious of which are credit default swaps, have been pegged as the main reason for the failure of the much-maligned insurance company American International Group.

    The regulation has seen strong opposition from those it will most affect - the financial industry and parts of the business industry, which have fought the bill from the outside while Republicans headed the campaign from within the House. Only one Republican, Rep. Walter Jones (North Carolina), sided with the Democrats in voting for the Over-the-Counter Derivatives Markets Act of 2009.

    Lawmakers are now considering changes to the bill to reassure centrist Democrats uncomfortable with what many see as overly strong oversight of the market. Only in draft form now, this amendment would keep the majority of oversight responsibility for community banks and credit union lobbies on the shoulders of the existing regulators. Sponsored by Reps. Dennis Moore (D-Kansas) and Brad Miller (D-North Carolina), it may minimize opposition from powerful financial industry lobbies, who have heavily opposed the bill thus far.

    Rep. Barney Frank (D-Massachusetts), chairman of the Financial Services Committee, called the amendment a "legitimate response" to the concerns of the community banks and credit unions.

    He also denied the influence of the different but equally powerful lobbies on the resulting legislation passed Thursday. "Goldman Sachs, Bank of America, JPMorgan Chase & Co., Morgan Stanley have no influence," he said.

    Heather Booth, director of Americans for Financial Reform, a consumer advocacy group, does not see the bill as sufficiently comprehensive. "It does not do enough to protect taxpayers and our economy," she said.

    The key components of the legislation set out a regulatory framework for the regulation of swap markets, dealers and major swap participants. All standardized swap transactions between dealers and large market participants, referred to as "major swap participants," would have to be cleared and must be traded on an exchange or electronic platform - an unprecedented decision.

    Rulemaking authority would be held jointly by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). Additionally, the Treasury Department has been given the authority to issue final rules if the CFTC and SEC cannot decide on a joint approach within 180 days. Subsequent interpretations of rules must be agreed to jointly by the commissions.

    The Democrats also hope to reach agreement on the ever-delicate balance between the powers of federal and state officials in market regulation. The Obama administration and liberal Democrats hope to allow state officials more leeway in pursuing stronger regulations that those strictly mandated by federal standards. More conservative Democrats and those in the financial industry favor pre-empting state action.

    The House leaders are expected to conclude voting on the bill in November, while the Senate is anticipated to take longer.

    The next legislative effort aimed toward systemic change is the Consumer Financial Protection Agency (CFPA), spearheaded by Frank, which he hopes to have reviewed by Wednesday. The battle over the CFPA may prove to be yet more contentious.

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