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Scott O'Malia, the lone Republican commissioner on the CFTC, dissented in Friday's vote. The CFTC "is not the global regulatory authority that it may think it is," O'Malia argued. Derivatives often are used to protect producers or users of commodities against future price fluctuations of an underlying commodity or security. But they also are used by financial firms to make speculative bets, and they have grown increasingly complex and risky. Gensler and other advocates of the "cross-border" reach have pointed to the $182 billion federal bailout of American International Group Inc. at the height of the financial crisis
-- the largest for any company. AIG nearly collapsed because of its huge derivatives bets on the housing market. AIG has since repaid the bailout. JPMorgan's trading loss from the London unit was eventually estimated at more than $6 billion. The bank drew sanctions from U.S. regulators for lapses in its oversight of the London unit. Five of the biggest U.S. banks -- JPMorgan, Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc. and Morgan Stanley
-- account for more than 90 percent of derivatives contracts. Regulators estimate that nearly half of derivatives are traded outside the United States. The big banks have lobbied against stricter regulation for derivatives, which are a significant source of the banks' revenue. In contrast to the CFTC, the Securities and Exchange Commission has taken a looser approach for the smaller proportion of derivatives it regulates. The SEC would allow overseas trades to avoid U.S. regulation if the country in which they occur has rules roughly equivalent to those in the United States.
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