The Senate Agriculture Committee voted 13 to 8 to approve a tough bill to regulate derivatives on Wednesday, with one Republican — Sen. Charles Grassley — supporting the measure.

The Iowa Republican's vote was something of a surprise as the bill had been characterized as too extreme by others in his party.

The vote's impact for the broader regulatory reform effort is unclear. The derivatives bill is expected to be included as part of the reform package, which only needs the support of one GOP member to avoid a filibuster. The vote marked the first time that a Republican has voted for any element of regulatory reform in either the House or Senate.

Committee Chairman Blanche Lincoln called the vote "historic."

The bill is seen as far too harsh by the large banks, which would be forced to divest their swaps units under the legislation.

Overall, the bill would require most derivatives to be centrally cleared and traded on exchanges. It would require real-time price reporting on all derivatives transactions to ensure full transparency of such trades.

The bill would let the Commodity Futures Trading Commission establish future margin requirements and impose position limits.

Lincoln toughened the bill further on Wednesday by narrowing an exemption. Previously, the bill had said banks with less than $50 billion of assets could be exempted from clearing requirements if they were an end-user. Under the version that came out of committee, no banks would be exempted.

The revised bill did address at least one of the banking industry's concerns. Rather than requiring all foreign currency swaps to be regulated like other contracts, the bill would let the Treasury Secretary determine if there should be exceptions.

But the industry's biggest concern was left unchanged. The bill would ban any financial firm that receives federal support, including access to the Federal Reserve Board's discount window and deposit insurance, from trading swaps.

Lincoln said the goal of the provision is similar to the so-called Volcker Rule to ban banks from engaging in proprietary trading. She wants to ensure all risky derivatives transactions are separated from commercial banking.

The industry has argued that the practical impact of the measure would be to force most swaps dealers off-shore.

During debate, several Republicans said that a broader bi-partisan agreement had been within reach two weeks ago, but the White House shut down negotiations between Lincoln and Sen. Saxby Chambliss, the top panel Republican.

"Less than two weeks ago we had worked out a good bi-partisan product," said Chambliss. "I wish that the other members of the committee, both Republicans and Democrats, would have had the opportunity to help further refine that agreement."

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