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Legislative Updates: June 2009


Capitol Call

In May, President Obama signed into law three credit and finance-related bills passed by Congress, the result of bipartisan Congressional cooperation. One of the measures, the Fraud Enforcement and Recovery Act, includes a provision establishing a Financial Crisis Inquiry Commission. The Commission is charged with reviewing the current financial crisis and making recommendations to Congress to prevent future problems by December 15, 2010.

June is shaping up to be a very busy month in Washington. The Obama Administration is expected to provide more details of its proposed financial regulatory restructuring plan in the near future. Five House Financial Services Committee hearings are scheduled on regulatory restructuring. In addition, both the House and Senate Agriculture Committees have listed hearings on the regulation of over-the-counter derivatives markets. It is still unknown whether the different committees can reach a consensus to include derivatives issues in a larger regulatory reform package that could be approved by the full House as early as next month.

Included in the budget the Obama Administration released in May is a proposal to treat the income of options market-makers and professional futures traders as ordinary income. If enacted, this proposal would—we believe unfairly-- increase the tax rate of these individuals by 72% in 2011. The Administration included this tax change in order to pay for health care reform. The OCC is working on educating those in Congress about the need to oppose this tax increase because of the unintended consequences of making options and futures less liquid and more expensive for investors to purchase. It is also circulating a draft Exchange Coalition letter that will be sent to the House Ways and Means and Senate Finance Committees expressing the industry’s opposition to the Administration’s budget proposal.

On May 5, the SEC held a Roundtable discussion on its draft proposal to either reinstate or modify the uptick rule. The discussion gave interested parties an opportunity to provide feedback on the issue and comment on which, if any, of the five proposals should be approved by the SEC. The SEC has received over 3,000 comments on the issue and is expected to vote on a proposal in August. An Options Exchange Coalition letter expressing its support for an options market-maker exception to any final rule has been drafted and will be submitted to the SEC prior to the June 19 deadline.

Finally, after almost four months, the nomination of Gary Gensler to head the CFTC was overwhelmingly approved by the Senate. On a vote of 88-6, Mr. Gensler was approved on May 19 and immediately went to work. Several Senators who opposed Mr. Gensler’s nomination withdrew their holds after the Treasury Department announced a proposal to regulate derivatives markets. They had been frustrated by the Administration’s lack of progress on the issue, and held up Mr. Gensler’s nomination as a protest. Mr. Gensler is scheduled to testify at this week’s Senate Agriculture Committee hearing on the regulation of derivatives markets.

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