Mar.House Ag Subcommittee Discusses H .R. 1838, H.R. 3283, H.R. 4235

At a House Agriculture Subcommittee hearing on March 28, lawmakers heard the views of industry stakeholders on a number of legislative measures to amend Title VII provisions under the Dodd-Frank Act. The bills discussed today include the following: H.R. 1838 to repeal Section 716 of Dodd-Frank; H.R. 3283, Swap Jurisdiction Certainty Act; and H.R. 4235, Swap Data Repository (SDR) and Clearinghouse Indemnification Correction Act. All three bills have been approved by the House Financial Services Committee.  

Chairman Michael Conaway (R-Texas) highlighted the bipartisan work that had gone into crafting the three bills and emphasized the need for such legislation to help provide legal and regulatory certainty for businesses. Conaway also voiced support for his bill, H.R. 1840, which would require the Commodity Futures Trading Commission (CFTC) to conduct a comprehensive cost-benefit analysis of proposed rulemakings before promulgating any rule. 

Rep. Leonard Boswell (D-Iowa) also voiced his support for H.R. 1840 of which he is a cosponsor, and urged the House to pass the measure.  


In his opening statement, Charles Vice, President and CEO of Intercontinental Exchange, Inc. (ICE), expressed ICE’s support for H.R. 3283 and H.R. 4235. Vice said that as a cross-border firm, ICE is subject to regulatory oversight by the U.K. Financial Services Authority (FSA), the CFTC, Securities and Exchange Commission (SEC), and the Manitoba Securities Commission. He noted how the CFTC and SEC have not yet provided guidance on how the Dodd-Frank Act will be applied extraterritorially and how such uncertainty is inhibiting the ability of ICE to properly assess which entities will be subject which regulatory oversight.  

Vice said H.R. 3283 was an “important step forward” in helping to define what transactions and participants would be subject to Dodd-Frank by clarifying the definition of “U.S. person” and “non-U.S. person” as well as clarifying how Dodd-Frank regulation will be applied to international transactions. Vice said Section 728 of Dodd-Frank regarding the indemnification requirements related to regulators seeking to obtain data from SDRs is an “error” and would result in “forcing an SDR to create separate subsidiaries in other countries to provide swaps transparency to foreign regulators.” Vice said H.R. 4235 would correct this provision and allow U.S. SDRs to provide transparency for international swaps transactions.  

In his opening statement, Paul Saltzman, President of The Clearing House Association, expressed The Clearing House’s support for H.R. 1838 and H.R. 3283. Saltzman said H.R. 1838 would permit banks to continue to engage in a range of swaps activity without creating safety and soundness risk as well as promote efficient risk management by allowing derivatives transactions to stay within banks rather than their non-bank affiliates. Saltzman said H.R. 3238 would help clarify the scope of the Dodd-Frank regulation and warned that application of Title VII requirements to U.S. banking organization’s operations outside of the U.S. would place U.S. banks at a competitive disadvantage to their non-U.S. counterparts in the global market. 

In his opening statement, Keith Bailey, Managing Director at Barclay’s who spoke on behalf of the Institute of International Bankers (IIB), voiced IIB’s support for H.R. 3283 and H.R. 1838. Bailey noted how H.R. 3283 would bring market participants needed regulatory clarity and pointed to the fact that the CFTC finalized swap dealer registration rules that will take effect once entity definition rules are completed. He noted how such rules will likely be finalized before the CFTC completes its extraterritorial guidance which would continue to leave open compliance concerns for firms possibly subject to the new regulation. Bailey provided an overview of the operational and regulatory issues related to Section 716 and discussed how H.R. 1838 as amended by the House Financial Services Committee would reconcile these concerns.  

In his opening statement, Michael Bodson, Chief Operating Office of The Depository Trust & Clearing Corporation (DTCC), expressed DTCC’s support for H.R. 4235. Bodson said the two key extraterritorial provisions in the Dodd-Frank Act that “risk fragmenting global swap data” are the confidentiality and indemnification provisions and the plenary access duties of SDRs. Bodson pointed to provisions in Dodd-Frank that require SDRs registered with the CFTC or SEC to provide “direct electronic access to the Commission.” He said foreign regulators are concerned with the ambiguity of the requirement and the potential for regulators to interpret the provision in overly broad manner by requiring SDRs to provide access to all swap data even when there are no direct ties to U.S. regulatory requirements. Bodson said DTCC supports the bill and noted DTCC’s work with its global partners in designing repositories that meet the regulatory requirements of respective jurisdictions. 

Question and Answer 

Rep. Renee Ellmers (R-N.C.) asked the witnesses how their organizations are preparing to comply with the swap entity registration requirements. 

Bailey said the registration process is very complicated for many international banks noting that it is “impossible” to properly assess what entities will be subject to the scope of the Dodd-Frank law without guidance by regulators.  

Ellmers also asked if businesses anticipate convergence between the U.S. and foreign jurisdictions on rules related to the regulation of clearinghouses. 

Vice noted how ICE runs entities that are dually registered with U.S. and U.K. regulators and emphasized the importance of harmonizing such rules in order to avoid regulatory duplication.  

Boswell pointed to the SEC’s and CFTC’s lack of guidance on how Title VII regulation will be applied extraterritorially and asked if U.S. regulators are capable of coordinating regulatory reform efforts with their foreign counterparts.  

Bodson said substantial uncertainty is created by the indemnification and plenary access issues under the Dodd-Frank Act, noting how uneven access to data will work to degrade regulatory cooperation. Vice noted how the CFTC and FSA are both currently struggling with staffing and budgetary issues as it relates to implement new reform laws. 

Rep. Tim Huelskamp (R-Kan.) asked what threats exist of international regulators enacting retaliatory legislation with regard to certain Dodd-Frank provisions.  

Bodson said the European Market Infrastructure Regulation (EMIR), which provides for mandatory clearing requirements and regulation of trade repositories, included indemnification provisions similar to the Dodd-Frank Act that were later removed. Bodson also noted how Hong Kong has chosen to establish local trade repositories.  

Rep. Terri Sewell (D-Ala.) noted how she is a cosponsor to H.R. 4235 and discussed how the bill is needed in order to avoid data fragmentation. Sewell asked how systemic risk would increase if the indemnification provision is not corrected.  

Bodson discussed how his firm operates a comprehensive database of global positions which enables regulators and market participants to obtain a whole picture of exposures financial firms have to certain derivatives contracts. He said the proliferation of local data repositories would hinder data aggregation efforts and would increase the difficulty of regulators and participants to gain a complete picture of swaps exposure on a global basis. 

Rep. Randy Neugebauer (R-Texas) asked how market participants in the commodities market would be impacted by Section 716 of the Dodd-Frank Act. 

Bailey said Section 716 would force banks to push out their commodities businesses to subsidiaries without access to the Federal Reserve discount window. He said such entities would have to be separately capitalized and would require separate risk management personnel. He said the costs related to such duplication could force some businesses to exit the marketplace as well as increase costs to consumers. Saltzman also noted that clients would lose the benefits of netting and costs to end users would increase as a result of separate collateral requirements that would bring no added benefit to the safety and soundness of the financial system.  

Rep. David Scott (D-Ga.) noted that he is a cosponsor of H.R. 3283 and said all of the bills discussed today have been a product of bipartisan efforts. He stated his understanding that some firms are already experiencing a potential duplication in regulation and referred to the SEC’s regulation of certain commodities swaps and asked what regulators are expecting to accomplish with regard to such decisions. 

Vice said ICE operates a London-based clearinghouse which is subject to regulation by the FSA, CFTC, and SEC. He discussed how the clearinghouse clears credit default swap (CDS) contracts which require SEC regulation but that the SEC also has authority under Dodd-Frank to regulate certain commodities swaps. He said ICE must clear swaps with the three regulators even thought there is no nexus to the U.S. which substantially slows down the clearing process.  

Scott also asked if there was a concern that the clearing business is highly mobile and that business may shift to more light touch jurisdictions as a result of new reform laws. 

Vice said that market competition exists in the clearing business and that to stay competitive, shifting activity to other jurisdictions is a real risk.