By Eric Roper

As we noted last week, Agriculture Committee Chairman Collin Peterson has been one of the central figures in the debate over how Congress will regulate over-the-counter derivatives, a financial instrument that played a major role in last year's financial collapse.

The rural Democrat's committee approved derivatives legislation today -- a major step toward a final bill. A similar bill is making its way through the House Financial Services Committee this week, led by Massachusetts Democrat Barney Frank.

"OTC" derivatives refer to a variety of Wall Street agreements which are largely unregulated and usually intended to offset risk. Some specific types, like credit default swaps, have been cited as major causes of the recent financial meltdown. The size of the OTC derivative market is often estimated to be more than $400 trillion.

The federal oversight of derivatives will be one of the largest regulatory responses to the financial meltdown.

Proposals inching through the House would regulate derivatives primarily by requiring them to be approved through clearinghouses. Peterson's legislation has built in exemptions for "end-users," or companies that use derivatives on a smaller scale in order to hedge risk, according to the Associated Press.

The two bills will eventually be combined and put to a vote on the House floor.