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Legislative Updates: May 2010


Capitol Call

The phrase "hurry up and wait" comes to mind when considering the state of the current debate on financial regulatory reform in the Senate. Because of the collegial nature of the Senate, many bills are considered on the floor according to an agreement between the majority and minority that dictates the length of time and the order in which amendments are debated. If the minority objects to the direction in which the legislation is moving they can stop action on the pending issue and the majority needs 60 votes to break the legislative logjam.

As a result, amendments are often vigorously debated on the Senate floor followed by an immediate quorum call which allows the leaders to discuss off the floor what to do next. Hours-long quorum calls are commonplace, even during the most contentious debate, which can make the proceedings somewhat anticlimactic compared with the floor of the House, where the debate is clearly controlled by the majority and often contentious. The Senate operates as it does because it sees itself as a more deliberative and thoughtful body, with Members working together and acting in a courteous or "Senatorial" manner, even if they fight like cats and dogs away from the floor.

All attention turned to the Senate in April, as S. 3217, the Restoring American Financial Stability Act, was introduced on April 15 by Senate Banking Committee (SBC) Chairman Chris Dodd (D-CT). After months of hearings and on-again off-again negotiations between Chairman Dodd and Committee Republicans, the time had finally come for the bill to be debated on the floor of the Senate. After four weeks of vigorous debate on the Senate floor—an unusually long time to debate one measure--and votes on dozens of amendments, the Senate on May 20 passed S. 3217, its version of financial reform, by a largely party-line vote of 59-39.

Several portions of S. 3217 are beneficial to the options industry. The measure includes language on portfolio margining and a mechanism within Title VII to develop a system for the SEC and CFTC to follow when determining which agency has jurisdiction over a proposed derivative product. Hopefully this will eliminate the many jurisdictional battles between the CFTC and SEC over new product approval that has created lengthy delays in the process.

Title VIII of the measure will give the Federal Reserve the authority to grant clearinghouses access to the Discount Window on a discretionary basis. However, Chairman Dodd and Senate Agriculture Chairman Blanche Lincoln (D-AR), have included language in Section 716 that would contradict this and explicitly prohibits OCC and other "swaps entities" from receiving any federal assistance, including access to the Fed Discount Window. OCC and other clearinghouses are working with Congress to have that language modified or removed.

The House of Representatives, having passed its own version of financial regulatory reform in December, waited patiently for the Senate to complete its work. Now that the Senate has passed its version of the measure, the two bills will be reconciled through a publicly-televised formal Conference Committee next month. The battle between the House and Senate on which provisions will be kept in and which will be eliminated will surely produce some fireworks. Many speculate that a final version of financial reform legislation will be ready for the President’s signature by July. It promises to be an interesting journey between now and then.

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