Financial Crisis News Center

CCH White Paper Offers Closer Look at HR 4173

CCH Principal Analyst James Hamilton, J.D., LL.M., has authored a 40-page white paper titled, "House Passes Historic Securities, Derivatives and Systemic Risk Reforms: HR 4173." The paper offers a detailed look at the securities, derivatives, corporate governance, systemic risk and dissolution authority components of the legislation.

Download the white paper

Peterson-Frank Remarks: Securities and Derivatives Exchanges Not Subject to Systemic Risk Regulation

This story appeared in Jim Hamilton's World of Securities Regulation.

Title I of the House Wall Street Reform and Consumer Protection Act, HR 4173, creates a systemic risk oversight and regulatory structure that enables regulators to raise capital requirements and impose heightened prudential standards on large, interconnected firms that could pose a threat to financial stability. The legislation also empowers the Federal Reserve Board to impose a host of additional requirements on institutions and activities deemed systemically important.

House Legislation Hedging Exemption Subject to Floor Amendments

This story appeared in Jim Hamilton's World of Securities Regulation.

The House reform legislation would require over-the-counter derivatives trading to be conducted through clearinghouses, which are set up to police derivatives trading. Under HR 4173, if a clearing mandate applies to a swap or class of swaps, then the swap dealers and major swap participants not only have to clear such trades but also have to execute them on or through a futures or securities exchange or a swap execution facility. This provision provides greater price transparency and will narrow spreads, all to the benefit of the end user. For the end users, the bill provide an exemption from the clearing mandate and, consequently, from the execution mandate. The House defeated an amendment that would have imposed an execution mandate on end users.

CCH Briefing Paper Examines House Legislation

The CCH Editorial Staff of banking and securities law analysts has authored a detailed overview titled, "House Passes Wall Street Reform Act." From the introduction:

On December 11, 2009, the U.S. House of Representatives passed legislation to restructure the financial services regulatory system, the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173), by a vote of 223-202. As discussed below, the sweeping array of reforms includes the Financial Stability Improvement Act, which would create a systemic risk regulator, strengthen regulation of depository institutions and bank holding companies, improve the asset-backed securitization process, and provide for an enhanced dissolution authority. The legislation also would create a Consumer Financial Protection Agency, reform the over-the-counter derivatives market, subject hedge funds to stricter scrutiny, impose new corporate governance mandates, adopt heightened requirements for credit rating agencies and expand regulatory enforcement powers. Among other measures, the legislation features expansive consumer mortgage protections and creates a Federal Insurance Office.

Download the briefing paper

House Committee Passes Legislation Regulating Systemic Risk, Reforming Securitization, and Creating a Resolution Process for Failed Financial Firms

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The House Financial Services Committee has passed legislation creating a systemic risk regulator, providing for a resolution authority to wind down large interconnected failed financial companies in an orderly manner, and reforming asset-backed securitization. The legislation also creates a Federal Stability Oversight Council, whose members include the Fed, the SEC and the CFTC, to monitor the marketplace to identify potential threats to the stability of the financial system. The Council, chaired by the Treasury Secretary, will subject financial companies and financial activities posing a threat to financial stability to much stricter standards and regulation, including higher capital requirements, leverage limits, and limits on concentrations of risk.

Senate Banking Committee Issues Draft Legislation Reforming US Financial Regulation

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The Senate Banking Committee has released draft legislation that would provide a sweeping overhaul of the regulation of US financial services and markets. The draft would provide for joint SEC-CFTC regulation of derivatives, make the SEC self-funding, strengthen the Commission’s powers, better protect investors, and efficiently and effectively regulate the securities markets The Restoring American Financial Stability Act of 2009 would also reform the credit rating agency process by, among other things, establishes a new Office of Credit Rating Agencies at the SEC to enhance rating agency regulation and mandating new rules for internal controls, independence, transparency and penalties for poor performance in order to restore investor confidence in these ratings.

Frank Issues Statement on Derivatives

This story appeared in Bank Digest.

Financial Services Committee Chairman Barney Frank, D-Mass., released a statement regarding a response received from Commodity Futures Trading Commission Chairman Gary Gensler. Chairman Gensler’s letter was responding to Chairman Frank’s November 4 letter. Frank noted “I appreciate Chairman Gensler’s agreeing that we should change the provision of the derivatives bill that he requested that would have put the clearinghouses in charge of determining that a trade is clearable. As some people pointed out, this could have given rise to a conflict of interest, given the financial stake that many firms have in the ownership of clearinghouses. While Chairman Gensler originally had indicated that making the clearing determination would be burdensome for the CFTC and thus should be left to the clearinghouses, I am now pleased that he agrees that the regulators should take on this function, which is preferable to the potential conflict.”

Frank Statement at http://www.house.gov/apps/list/press/financialsvcs_dem/pressgensler_110609.shtml

CFTC Response at http://www.house.gov/apps/list/press/financialsvcs_dem/gensler_reply_to_rep_frank.pdf

Frank Letter at http://financialservices.house.gov/pdf/Schapiro_Gensler_Letter100409.pdf

House Leader Asks for SEC-CFTC Input as Derivatives Legislation Moves towards Passage

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and CCH Derivatives Regulation Law Reporter.

As the House anticipates floor debate on legislation regulating derivatives, Financial Services Committee Chair Barney Frank has asked the SEC and CFTC for input in crafting two important amendments to the legislation. In a letter to SEC Chair Mary Schapiro and CFTC Chair Gary Gensler, Mr. Frank said that he would clarify who can claim the exception from the clearing and trading requirement; and also place solely with the SEC and CFTC the decision on what swaps must be cleared. Specifically, the Frank Amendment would clarify the exception for end-users hedging legitimate business risks. The amendment is designed to make the exception tight enough to prevent speculators from masquerading as end users.

House Derivatives Legislation Represents Compromise with Moderate Democrats; Ag Committee Approves Legislation

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The OTC Derivatives Markets Act, HR 3795, that was favorably reported out of the House Financial Services Committee is a consensus-based piece of legislation representing significant input from moderate Democrats. Members of the New Democrat Coalition worked with Chairman Frank to bring this legislation to fruition. The legislation incorporates provisions from the Derivatives Trading Accountability and Disclosure Act HR 3300, which was backed by the New Democrat Coalition.

CFTC and SEC Issue Harmonization Report

This story appeared in Bank Digest.

The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) today issued a joint report identifying areas where the agencies’ regulatory schemes differ and recommending actions to address those differences, where appropriate. The report was issued in response to a White House released White Paper on Financial Regulatory Reform. The report includes 20 recommendations to enhance enforcement powers, strengthen market and intermediary oversight and improve operational coordination.

http://www.sec.gov/news/press/2009/cftcjointreport101609.pdf

Commenting on the report, SEC Chairman Mary Schapiro said, “This report is another step forward in our effort to reform the regulatory landscape and ensure greater harmonization between our agencies.” She added, “I believe these recommendations will help to fill regulatory gaps, eliminate inconsistent oversight, and promote greater collaboration.”

http://www.sec.gov/news/speech/2009/spch101609mls.htm