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Legislative Updates: February 2012

 

Capitol Call

The second session of the 112th Congress may not have begun until the middle of January, but there is already plenty of activity to report. After months of speculation, the House Agriculture Committee held a highly-anticipated markup session on January 25 to debate and vote on several measures related to Title VII of Dodd-Frank.

Three of the bills unanimously passed by the Agriculture Committee (improving the cost-benefit analysis of CFTC regulations, exempting inter-affiliate swaps from certain regulatory requirements, and clarifying SEFs and protecting "Main Street" end-users from "excessive regulation") were also marked up out of the House Financial Services Committee last fall because the two committees share jurisdiction over Title VII. These bills are expected to be included in a package of Dodd-Frank reform items that will likely be considered and passed by the full House in the near future.

While it is unclear what items the House leadership will include in the final package, it is clear that any Dodd-Frank reform package passed by the House will face a steep climb in the Senate. Senate Banking Committee Chairman Tim Johnson (D-South Dakota) has indicated that he is not interested in modifying Dodd-Frank at this time. Since he has yet to outline the Committee priorities for 2012, most observers speculate that the Committee schedule will once again be light on substantive legislation and heavy on oversight hearings.

The CFTC will also not be light on hearings in 2012. On January 11, the agency held its 23rd open meeting to consider Dodd-Frank related rulemakings. During the meeting, the Commissioners passed three swap-related final rules, including the registration of swap dealers and major swap participants, the protection of cleared swaps customer contracts, and collateral and business conduct standards for swap dealers and major swap participants with counterparties.

During the same meeting, CFTC Chairman Gary Gensler released a tentative outline of the final rules and interpretive orders he expects the CFTC to consider in 2012. The timeline can be found on its website.

The final rules of interest to clearinghouses and clearing members are, listed as they appear in the document: Commodity Options, DCMs, Product Definitions, Capital and Margin, Internal and External Business Conduct, Governance and Conflict of Interest, Implementation (clearing and trade execution), and SEFs. The first three of these rules are on the docket for the first three months of the year, and the rest should be taken up after April.

The SEC also has its timeline available on its website, and a top priority of the agency is to adopt joint rules with the CFTC on product definitions, which has not yet been done. The SEC has indicated that it will adopt rules defining the standards that clearing agencies must meet in order to be designated as "systemically important."

It appears that 2012 will be the year in which regulatory agencies will move forward with significant progress on Dodd-Frank implementation. Congress will continue to hold oversight hearings to ensure that the agencies are operating within Congressional intent, but actual legislation modifying Dodd-Frank, along with any other substantive legislation, is highly unlikely to pass this year.

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