Committee Bill Will Bring Accountability to Over-the-Counter Markets for the First Time
Liz Friedlander (202) 225-1564
James Ryder (202) 225-0020
Today, the House Agriculture Committee approved legislation bringing accountability to derivatives markets, bringing unregulated over-the-counter (OTC) products, such as swaps, under federal oversight for the first time. By voice vote, the House Agriculture Committee approved an amended version of the amendment in the nature of a substitute to H.R. 3795, legislation that will increase transparency in and strengthen the oversight of both regulated exchanges and OTC derivatives markets.
The bill institutes a clearing and trading requirement for all OTC swap transactions between dealers and large market participants that are accepted by a clearinghouse. Non-cleared swaps must be reported, with major participants and dealers adhering to strengthened capital and margin requirements. The bill exempts commercial end users who use derivatives markets to hedge their price risk from the clearing requirement.
The bill also contains provisions from H.R. 977, passed by the House Agriculture Committee in February, including the strengthening of position limits on futures contracts for physically-deliverable and over -the-counter commodities as a way to prevent potential price distortions caused by excessive speculative trading.
“This legislation reflects more than two years of public hearings and a lot of bipartisan work," said Chairman Collin C. Peterson of Minnesota. “The clearing and exchange trading requirements, along with strong position limits provisions, will increase transparency in the marketplace, will benefit end users by not submitting them to onerous cash collateral requirements, and will hold swap dealers and major swap participants to new standards for capital, margin, business conduct and other requirements to reduce their ability to again place our financial system in such dire straits."
“Today was another step on the road to creating a pragmatic regulatory structure to the derivatives market," said Ranking Member Frank D. Lucas of Oklahoma. “I appreciate Chairman Peterson’s effort in working with us in a bipartisan fashion. The work we did today made significant improvements to the bill, but there is still a long way to go before it reaches the House floor. I am hopeful we can continue to make progress."
Provisions included in the bill would:
* Institute a clearing requirement for swaps and security-based swaps, with derivatives clearing organizations determining which swaps must be cleared.
* Provide for exceptions from the clearing requirement for commercial end users who are not swap dealers or major swap participants.
* Hold swaps dealers and major swap participants accountable through margin, capital, business, and other conduct requirements.
* Require cleared, listed swaps to be traded on regulated exchanges.
* Require reporting and public disclosure of swap transactions.
* Allow CFTC to impose position limits on swaps and SEC to impose position limits on security-based swaps.
* Provide for exclusive jurisdiction of swaps products under the Commodities Futures Trading Commission, with security-based swaps products under the exclusive jurisdiction of the Securities and Exchange commission
* Call for CFTC and SEC consultation in rulemaking regarding swap and security-based swap provisions
* Require CFTC to set trading limits for physically-deliverable commodities, in order to prevent excessive speculation.
During today’s business meeting the Committee considered and adopted several amendments to the underlying legislation. All adopted amendments along with a description of the text can be viewed on the Committee’s website at http://democrats-agriculture.house.gov. The Committee approved all of the following by voice vote:
* A manager’s amendment by Chairman Peterson, making multiple changes.
* An amendment by Representative Walz of Minnesota, regarding swaps not accepted for clearing.
* An amendment by Representative Goodlatte of Virginia, regarding studies on the effects of position limits.
* An amendment by Representative Halvorson of Illinois, regarding aggregated position limits.
H.R. 3795 was introduced on October 13 by House Financial Services Chairman Barney Frank of Massachusetts. Following that committee’s approval of the bill by a 43-26 vote on Oct. 15, it was referred to the House Agriculture Committee, where it was debated and approved today.
During the business meeting, the House also approved two separate watershed projects. By voice vote the Committee approved the Dunloup Creek Watershed (West Virginia) and the Cape Cod Watershed (Massachusetts) projects.
Previous Committee action on derivatives legislation, including hearing opening statements and bill summaries can be found on the Agriculture Committee website at http://democrats-agriculture.house.gov/hearings/.
Source: House Committee on Agriculture
