Tuesday, May 24, 2011

House Financial Services Committee Approves Legislation Extending Dodd-Frank Derivatives Deadline

The House Financial Services Committee, chaired by Rep. Spencer Bachus (R-AL), approved legislation giving the SEC and CFTC more time to write and review the Dodd-Frank mandated regulations governing derivatives H.R. 1573, approved by a partisan vote of 30 to 24, addresses concerns that the proposed Dodd-Frank rules governing derivatives could put U.S. firms at a competitive disadvantage to their foreign competitors. The legislation extends the rule writing deadlines on some provisions but leaves the Dodd-Frank Title VII reforms intact. The legislation maintains the current timeframe for defining the key terms as well as the rules requiring reporting of all over-the-counter contracts. Chairman Bachus said that the legislation would give regulators additional time and information to engage in the proper due diligence needed to get the derivatives rules right from the start. H.R. 1573 will provide regulators with vital information about derivatives transactions to ensure transparency and market safety, he emphasized.

During consideration of H.R. 1573, the Committee approved by voice vote an amendment offered by Chairman Bachus to maintain the original Dodd-Frank effective date for the regulators to finish the clearing rules by July 21, 2011. The Committee also approved by voice vote an amendment offered by Capital Markets Subcommittee Chairman Scott Garrett (R-NJ) to change the effective date of the derivatives title to September 30, 2012. An amendment offered by Rep. Stephen Lynch (D-MA) provides that the use of any authority granted to the SEC and CFTC to address speculative trading will not be delayed, including the impact of such trading on the markets, users, or investors and consumers. Also, the Commissions must port to Congress on the use of such authority.

The legislation would add a new section 712(g) to Dodd-Frank requiring the SEC and CFTC before adopting final regulations to conduct public hearings and roundtables and listen to affected market participants, experts and other interested parties. The Commissions must also solicit public comment on the time and resources that would be required of affected parties in order to develop systems and infrastructure necessary, and policies designed, to comply with the proposed regulations and any alternative approaches capable of accomplishing the relevant rulemaking objectives.

Finally, in a nod to international comity, HR 5173 would authorize the SEC and CFTC to exempt non-US persons from the registration and related regulatory requirements of Dodd-Frank to the extent the Commissions determine that the person is subject to a comparable foreign regulatory scheme in its home country and adequate information sharing arrangements are in effect between the SEC or CFTC and the home country regulator. The SEC and CFTC may condition the exemption on compliance with all or any part of the alternate regulatory scheme, and on such other term as the Commission determines appropriate. The SEC and CFTC may also deem any noncompliance with the alternate regulatory scheme a .violation of the corresponding provisions of Dodd-Frank.