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Legislative Updates: July 2009


Capitol Call

A lot has been said about the pace at which President Obama and the Congress are operating. It seems as though they are holding hearings and debating practically every issue of the day. From climate change and health care to our nation’s military, transportation infrastructure and immigration, they are actively working on several critical issues at the same time.

Health Committees are in the process of voting on pieces of the health care reform legislation and both the House and Senate are expected to complete committee consideration of their bills by the August recess. President Obama has declared health care reform to be his top priority, and recent public opinion polls show that the American people agree that it is the most important issue for our government to address.

One of the major issues to be addressed is how to pay for health care reform, which is extremely expensive. President Obama in his budget request presented Congress with a “Green Book” of possible ways to raise revenue. In the “Green Book” is a proposal which raises $2.6 billion over ten years and would change the tax treatment of Options Market Makers and Futures Professionals from the current 60/40 blended Long Term/Short Term capital gains treatment to purely Ordinary Income. This tax change would result in a 72 percent tax increase for these critical personnel in our markets.

The OCC and some member exchanges have held meetings with members of the Finance and Ways and Means Committees to express the industry’s opposition to this proposed revenue raiser. We expect the relevant Committees to decide later this month on what revenue raisers to include in the final legislation.

On June 17, the Treasury Department released its highly-anticipated proposal to fundamentally reform the current regulatory structure in order to protect consumers and prevent future financial crises. The 88-page proposal includes numerous changes to the regulatory system and will require a significant amount of time for review.

There are several proposals which are important to the options markets. These include:

  • Creating of a systemic risk regulator to oversee systemically-important institutions;
  • Transferring many derivatives transactions from the current Over-The-Counter (OTC) structure to clearinghouses and/or regulated exchanges
  • Establishing a resolution authority which would unwind systemically important institutions such as AIG
  • Harmonizing the statutes and regulations of the SEC and CFTC. This proposal requires the SEC and the CFTC to present recommendations to Congress by September 30, 2009.

Regulatory reform legislation is likely to be considered in the near future. House Financial Services Committee Chairman Barney Frank (D-MA) is committed to passing some sort of Regulatory Reform legislation from his Committee before the August recess, and he has scheduled six hearings on the issue in July, in addition to the two he held in June. He has also reserved time to mark-up this legislation at the end of July. Senate Banking Committee Chairman Christopher Dodd (D-CT), on the other hand, is busy shepherding the pending health care legislation through the Senate and has indicated that he will consider the Regulatory Reform proposal later this year.

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