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Legislative Updates: November 2011


Capitol Call

If you look out the window of our OCC Washington office, you can see westward down Pennsylvania Avenue towards the White House. But if you look a little closer at Freedom Plaza, just one block away, you can see about two dozen tents that make up one-half of the "Occupy Washington" movement. Tourists and office workers stop by their camp, mostly out of curiosity, and the Occupiers have remained a peaceful, if curious, bunch, seemingly content to spending their time occupying the public square until "Wall Street" and "Washington" reform their ways.

Of course, these folks are angry about various issues, but one thing that is clear is that they are not happy with the way things are now. Nor, it seems, is anyone happy with Washington these days, with Congress garnering a whopping 9 percent approval rating in a recent poll. Some in Congress even self-deprecatingly speculate that those 9 percent are all their own relatives.

But the work of Congress must go on whether the rest of the country approves of them or not, and the Committees overseeing the collection of industries called "Wall Street" have been busy holding hearings and introducing legislation in an attempt to reduce the regulatory burden on small businesses. The House Financial Services Committee held several hearings on the status of the housing finance system and also one on "legislative proposals to bring certainty to the OTC derivatives market." Most of the witnesses were end-users and it is still uncertain what the legislative proposals will include, but it is encouraging that the Committee is focused on relieving the regulatory burdens facing the derivatives industry.

Additionally, the House Agriculture Committee held a hearing in October to review legislative proposals amending Title VII of Dodd-Frank. Though the hearing was mostly agriculture and end-user focused, it also included a lot of discussion about swaps and SEFs. Reports indicate that the Agriculture and Financial Services Committees will work together to create a bill that will include the priorities of both Committees. However, when this bill will be introduced and passed is anyone's guess.

Meanwhile, the Senate spent its October holding hearings on issues ranging from Exchange-traded funds to economic sanctions on Iran. The House and Senate Committees clearly have differing priorities. But several Senate Republicans, led by Senator Mike Crapo (R-Idaho), have introduced amendments to various pending bills that would "provide needed fixes" to Dodd-Frank. The Senators are concerned that, while Dodd-Frank gave the SEC and CFTC mandates to write new rules for the OTC derivatives market, these regulators are not giving sufficient consideration to how their rules will affect small businesses or the overall economy. A familiar argument, to be sure, but any effort to reduce regulatory uncertainty and harmonize coordination between the CFTC, SEC and their international counterparts is a welcome development to those in the derivatives industry.

In regulatory news, the CFTC held an important hearing in October, approving two final rules and pushing back the effective date for swap regulation. On a 3-2 party-line vote, the Commission approved a highly controversial final rule that establishes position limits for futures and swaps. This rule was vehemently opposed by most in the futures industry, and even among a majority of the Commissioners, but Chairman Michael Dunn, in his last Open Meeting as a sitting Commissioner, ultimately sided with the majority. He did, however, lambast the rule in a lengthy opening statement.

The Commission also approved, on a 3-2 vote, a final rule establishing general provisions and core principles for Derivatives Clearing Organizations, which directly impacts OCC. OCC is still examining the rule, which is over 400 pages long, but it is evident that the Commission addressed a few of the concerns raised by OCC and other DCOs in their numerous comment letters while ignoring many others. While the rules were never going to please everyone, the ambitious implementation schedule will leave the industry scrambling to comply with a new rule that includes many potentially onerous provisions.

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