The Next Round of Derivatives Regulation In the weeks ahead, federal regulators will finalize rules that, done right, will bring long-overdue transparency and oversight to the multitrillion-dollar derivatives market. The big banks that control derivatives trading, however, are lobbying to dilute the rules. To grasp what is at stake, recall that the $182 billion taxpayer bailout of American International Group during the financial crisis was essentially a bailout of the global financial system, undertaken to make good on derivatives bets gone spectacularly wrong. Since then, financial regulators in the United States, particularly at the Commodity Futures Trading Commission, have put several rules in effect under the Dodd-Frank financial reform law to rein in derivatives. But a pair of reforms now before the C.F.T.C. are arguably the most important of all. One would require that most derivatives be traded on open electronic platforms, with prices visible to all participants before deals were done. That would curtail the practice of trading derivatives as private bilateral contracts, which would help to prevent destabilizing risks from building up without regulatory oversight. Banks object to this rule because transparent trading will invariably lead to lower prices for derivatives and lower profits for banks. They want broad exceptions to the rules, especially for large trades, which they say will disrupt markets if done openly. But that problem could be managed with a narrow exemption. To protect the public, regulators must ensure that the new rule will require the vast majority of trades - more than 90 percent - to be conducted openly. Another reform would ensure that new derivatives rules apply to trades made through the foreign branches, affiliates or subsidiaries of American banks. That is crucial, because in a global economy, risk knows no borders. Banks, however, want "substituted compliance," in which foreign affiliates are regulated by the foreign country as long as that country has similar rules. The trouble is, derivatives rules are weaker or nonexistent elsewhere, making the call for substituted compliance either a tactic to delay enforcement until the rest of the world updates its regulations or, worse, an attempt to avoid tough regulation altogether. The new rules, which are expected to take effect in January, could be delayed for six months to allow European and other international regulators to enact reforms that meet American standards. But even then, American regulators must be required to stringently verify that foreign rules and enforcement are truly comparable to standards in the United States. Otherwise, substituted compliance would be nothing more than disguised deregulation, and American taxpayers would remain exposed to future bailouts.