Re:Congressman Frank Circulates Cds Draft
DATE:OCTOBER 7, 2009
TO:NCOIL LEGISLATORS
FROM:SUSAN NOLAN
RE:CONGRESSMAN FRANK CIRCULATES CDS DRAFT,
HEARING ON WEDNESDAY
A discussion draft of the Over-the-Counter Derivatives Markets Act of 2009 is available here.
Written testimony and video for the House Financial Services Committee’s (HFSC) October 7 hearing will be available here.
Last Friday, HFSC Chairman Barney Frank (D-MA) circulated draft legislation to regulate derivatives markets, including credit default swaps (CDS). The Committee will discuss the legislation with various interested parties during a 10:00 a.m. hearing on Wednesday, October 7.
NCOIL POSITION/HISTORY
An NCOIL Financial Services & Investment Products Committee has developed proposed Credit Default Insurance Model Legislationto regulate certain covered CDS as insuranceand to ban so-called “naked” CDS in which a party has no material interest in the underlying asset. The model legislation was developed over seven conference calls and a two-hour session during the NCOIL Summer Meeting. It was deferred for final consideration at our upcoming Annual Meeting in New Orleans.
Immediately following the Summer Meeting, NCOIL wrote to key Congressional Committee members to overview our CDS model bill and activity. NCOIL does not have a position on the Congressional legislation.
OVER-THE-COUNTER (OTC) DERIVATIVES MARKETS ACT OF 2009
Like the Administration’s financial services regulator reform plan submitted to Congress in August, the draft legislation would, among other things, require:
- the CFTC and SEC to harmonize their treatment of futures-based and securities-based swap transactions and regulation
- the CFTC and SEC to impose strict capital and margin requirements, and business conduct, reporting and recordkeeping rules on all OTC derivative dealers and major market participants
- federal banking agencies to regulate OTC dealers and participants that are banks
- higher capital and margin requirements for non-standardized derivatives
Provisions in the legislation that were not in the Administration’s proposal include:
- CFTC authority to determine which swaps must be centrally cleared—as compared to the Administration’s requirementthat all standardized swaps be centrally cleared by a CFTC- or SEC-regulated clearinghouse
- the use of an exchange be one option to execute a trade, instead of being mandatory
- CFTC and SEC authority to ban swaps jointly deemed could be detrimental to financial market stability
- a requirement that the CFTC and SEC work with international regulators to establish consistent, international standards
- Treasury Secretary authority to prohibit any entity domiciled in a foreign country from participating in financial activities in the U.S. if the Secretary finds its swaps regulation undermines financial market stability
Feel free to contact Mike Humphreys by reply e-mail or at 202-220-3014 for more information.