The House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises reviewed on Thursday several pieces of bipartisan legislation aimed at making changes to derivatives provisions of the controversial Dodd-Frank Act.
Derivatives allow “end-users”—or farmers, ranchers and companies, among others—to manage their business risks by hedging against fluctuating prices and interest rates.
Witnesses who testified before the subcommittee voiced concern that some provisions in Title VII of Dodd-Frank are harmful to the economy and increase consumer costs by hampering the ability of end-users to hedge risk. Some witnesses also voiced concern that the provisions could put American businesses at a competitive disadvantage, a concern that has been echoed by lawmakers and regulators.
“We are very concerned that an impending regulatory burden on end-users of derivatives will result in higher costs to Main Street companies that will limit their growth, harm their international competitiveness and ultimately hamper their ability to sustain and, we hope, grow jobs,” Thomas Deas, Jr., the vice president and treasurer of Philadelphia-based FMC Corporation and a witness at the hearing, said. “The consequences of getting derivatives regulation wrong will be borne by American business and ultimately our fellow citizens.”
H.R. 634—The Business Risk Mitigation and Price Stabilization Act of 2013—would exempt end-users from Title VII’s margin and capital requirements. The Inter-Affiliate Swap Clarification Act, or H.R. 677, would exempt inter-affiliate trades from Dodd-Frank’s margin, reporting and clearing requirements.
H.R. 742, known as the Swap Data Repository and Clearinghouse Indemnification Act of 2013, would remove an indemnification requirement imposed on foreign regulators as a condition of gaining access to data repositories. The Swaps Regulatory Improvement Act, or H.R. 992, would repeal much of Section 716, which prohibits federal assistance to swaps entities.
The SEC Regulatory Accountability Act—or H.R. 1062—would direct the SEC to adhere to President Obama’s Executive Order No. 13563, which requires regulators to conduct comprehensive cost-benefit analyses. H.R. 1256, the Swap Jurisdiction Act, would require the SEC and CFTC to jointly issue rules relating to swaps between non-U.S. and U.S. entities.
H.R. 1341, the Financial Competitive Act of 2013, requires the Financial Stability Oversight Council to study the effects of differences between territories in implementing the derivatives credit valuation adjustment capital requirement.