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Legislative Updates: May 2011


Capitol Call

The Dodd-Frank legislation was signed July 21, 2010 which may seem like yesterday to some but years ago to the staffs of the SEC and CFTC, who have been busy putting together the scores of rules Congress required them to promulgate. The agencies have proposed dozens of rules so far, and have held 20 hearings, but no rules have been finalized yet.

This puts them unwittingly at odds with the Congressional mandate to have most of the rules finalized within one year of enactment. The one-year rulemaking requirement was optimistic from the beginning, but the complicated and controversial nature of the rules and the thousands of public comments received have all but pushed the agencies past the mandated deadline. There is no timeline yet for when all the rules will be completed.

CFTC Chairman Gary Gensler publicly stated the obvious when he said that all the rules would not be completed within the one-year Congressional deadline. Since there is no penalty for the agencies failing to comply, his announcement was not unexpected. He has also stated that the least-controversial rules will be finalized first and the more controversial rules will change from their proposed versions to conform, in part, to the public comments received.

In April, Republican leaders on the House Financial Services (HFSC) and House Agriculture Committees changed the game a bit by introducing H.R. 1573, which would delay the statutory deadline of Title VII, the derivatives title of Dodd-Frank, by 18 months. The Republicans believe that giving the SEC and CFTC additional time will allow them to more effectively meet the objectives of Title VII and will help to keep the United States in line with the regulatory efforts of our international counterparts.

Democrats are not as keen to delay implementation of Title VII because they want the changes required in the legislation to be enacted as soon as possible. HFSC Ranking Member Barney Frank (D-Massachusetts) and officials at the Treasury Department have publicly stated their strong opposition to H.R. 1573. Senate Banking Committee Chairman Tim Johnson (D-South Dakota) held a general oversight hearing on Title VII in April but has given no indication that he intends to consider H.R. 1573 anytime soon. The measure was marked up on May 4 by the House Agriculture Committee on a party-line vote of 25-20 and is scheduled to be marked up separately by the HFSC on May 12. It could possibly be considered and passed by the full House by the end of May. Its future after that is much less certain.

Meanwhile, on April 27, the SEC and CFTC held simultaneous open meetings to propose definitions of "swap" and "security-based swaps," and the regulation of mixed swaps. The proposed definitions are all joint rules and the staffs of the two agencies have been working on them for months. The SEC unanimously approved the proposed joint rules, totaling more than 300 pages, and the CFTC approved them by a vote of 4-1. The comment period on the proposed joint rules is 60 days. For additional information on what exactly is included in the definitions, please refer to the SEC Press Release on the topic:

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