House Oversight Chairs Introduce Legislation to Extend Deadline for SEC-CFTC Implementation of Dodd-Frank

The four House oversight chairs of the SEC and CFTC and the nation’s derivatives markets have introduced legislation extending for 18 months the deadline for regulatory implementation of the derivative provisions of the Dodd-Frank Act. The legislation is designed to give the SEC and CFTC more time to meet the objectives of the derivatives title, to prioritize deliberation over speed, to consider the costs and benefits, and to understand the cumulative impact of the rules that will be applied to the derivatives marketplace. In addition, HR 1573 would realign the U.S. with the G-20 agreement to implement reform by December 2012. The measure was introduced by Financial Services Committee Chair Spencer Bachus (R-AL), Agriculture Committee Chair Frank Lucas (R-OK), Commodities Subcommittee Chair K. Michael Conaway (R-TX) and Capital Markets Oversight Chair Scott Garrett (R-NJ).

In order to provide clarity to market participants, the legislation would maintain the current timeframe of 360 days after enactment for the SEC and CFTC to issue final rules regarding regulatory designations that will define the market, and maintain the current timeframe for rules requiring record retention and regulatory reporting. It would also require additional public forums to gather input from stakeholders before the rules become final.

According to Bachus, the legislation would ensure that the U.S. is not placed at a globally competitive disadvantage. Despite the best efforts of the regulators, he said the rules have not been proposed in a logical sequence and, if implemented on the current timeframe, could weaken U.S. markets during a period of economic recovery. The bill would provide regulators with vital information about derivatives transactions to ensure transparency. Bachus urged the SEC and the CFTC to use the additional time and information to engage in the proper due diligence to get the derivatives rules right from the start.

Conaway noted that, because of the short timeframes for meeting the staggering mandates of the Dodd-Frank Act, the CFTC has been forced to place speed over deliberation. The CFTC needs the proper amount of time to thoughtfully consider the overwhelming comments of concern by market participants that have been received so far. Conaway urged the CFTC to use the additional time to move toward a sequencing and an implementation schedule for its final rules in a logical order.

In Garrett’s view, the Act set up an unrealistic and unworkable timeline for the implementation of a massive and bifurcated new regulatory regime to oversee the OTC derivatives markets. If the SEC and the CFTC get this wrong, he said it will be difficult, if not impossible, for businesses of all shapes and sizes to responsibly hedge their risks, and trading will be forced from the U.S. markets to those overseas.

In order to facilitate compliance with the swap data repositories provisions, the legislation would provide that, before the new deadline of December 31, 2012, the SEC and the CFTC may authorize the reporting of swap data and security-based swap data to any person then conducting the business who has provided notice to the relevant Commission of its intention to register as a swap data repository or security-based swap data repository and has made such undertakings to the relevant Commission as the SEC or CFTC determine to be appropriate and in the public interest, consistent with Title VII.

The legislation would add a new section 712(g) to the Dodd-Frank Act to require the SEC and the CFTC to conduct public hearings and roundtables before adopting final regulations and to listen to affected market participants, experts and other interested parties. The Commissions must also solicit public comment on the time and resources that would be required by affected parties in order to develop the necessary systems and infrastructure, policies designed to comply with the proposed regulations and any alternative approaches capable of accomplishing the relevant rulemaking objectives.

H.R. 5173 would authorize the SEC and CFTC to exempt non-U.S. persons from the registration and related regulatory requirements of the Act to the extent the Commissions determine they are subject to a comparable foreign regulatory scheme in their home country and adequate information sharing arrangements are in effect between the SEC or the CFTC and the home country regulator. The SEC and CFTC may condition the exemption on compliance with all or any part of the alternate regulatory scheme, and on any other terms they deem appropriate. The SEC and CFTC may also deem any noncompliance with the alternate regulatory scheme a violation of the corresponding provisions of the Dodd-Frank Act.