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Legislative Updates: March 2010

 

Capitol Call

February began with much promise. The majority Democrats were re-energized after being given their legislative priorities by President Obama during his State of the Union address and subsequent release of his Fiscal Year 2011 Budget. The usually slow month of January was to give way to a productive and potentially breakthrough month on Capitol Hill, where several legislative logjams, including health care reform and financial regulatory reform, would be resolved and bills would be debated and passed.

Winter, however, had another idea and the Capitol, along with the rest of Washington, DC, was besieged by a historic blizzard. Almost three feet of snow blanketed the mid-Atlantic region during the second week of February, closing down the Federal government for four days and canceling an entire Congressional work week. With the members already scheduled to be working in their districts the next week, Congress was not in session for more than half the month. As a result, the Senate Banking Committee (SBC) held only four hearings and the House Financial Services Committee (HFSC) held only five, including four in one week to make up for lost time.

The status of the financial regulatory reform negotiations in the Senate seemed to change almost hourly in February as the latest information was regularly updated by the press. SBC Chairman Chris Dodd (D-Connecticut) seemed determined to create a bi-partisan bill, negotiating with both SBC Ranking Member Richard Shelby (R-Alabama) and SBC member Bob Corker (R-Tennessee) for several weeks. Ultimately, however, a bipartisan bill proved elusive and Chairman Dodd ended up introducing his own legislation in March, a 1336-page bill that included a consumer protection agency that many liberals and President Obama supported. Other components of the bill include portfolio margining and a mechanism to resolve jurisdictional disputes between the CFTC and SEC, both of which are top priorities of OCC. The bill attracted no Republican support and was passed without any amendments on a party-line vote of 13-10 on March 22. Senate leadership has indicated that the bill will be debated by the full Senate within the next few weeks.

Despite the February snow, some committees soldiered on. Many were surprised when the SEC announced on February 19 that it would hold an Open Meeting the following Wednesday on several amendments to Regulation SHO, the proposed rule on short-selling that had been under consideration since last spring. The short timeframe was unusual for the SEC, which normally schedules its open meetings much further in advance. But the hearing went on and the rule was adopted by a 3-2 vote. The amendments to Regulation SHO that were adopted would impose a circuit breaker in the markets whenever an equity stock drops more than 10 percent below its prior date closing price during a trading day. Once this circuit breaker has been activated, it will impose an "alternative uptick rule" which requires all short sales to be higher than the national best bid. No exception was made for options market-makers. The rule will be implemented in six months.

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