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Swap Dealers Caught in SEC Clash Over Severity of Bank Penalties

U.S. regulators are again feuding over how far-reaching punishments should be for banks that repeatedly violate securities laws, with the latest debate tied to penalties that could disrupt Wall Street’s trading in the $700 trillion derivatives market.

The battle at the Securities and Exchange Commission revolves around an internal agency policy that will detail when to discipline banks’ swap-dealing units. The five member SEC, which is scheduled to vote on the matter Wednesday, is divided over the rule and negotiations will probably go down to the wire, said three people with knowledge of the matter.