Picking up on a top priority of Chairman Bachus (R-AL), House FinServ today held a full Committee hearing on end-user coverage in the derivatives provisions of the Dodd-Frank Act. However, the hearing quickly segued into other matters, most contentious among them GOP efforts to curtail funding for the SEC and CFTC. Ranking Member Frank (D-MA) and other Democrats have introduced an amendment to boost funding, occasioning a debate about what the regulators would or wouldn’t do with more funding. In this report, we focus on aspects of the hearing germane to pending financial-market regulatory matters. FRB Governor Tarullo indicated that the Board is looking for ways to exempt small banks and other non-systemic end-users from new margin requirements and to ensure that they apply only prospectively to all swaps-market participants. Focusing on the “Lincoln Amendment” (see FSM Report DERIVATIVES20), he argued that the statutory prohibition against exempting foreign-bank hedging activities appears to be a drafting error that requires attention. Under questioning, SEC Chair Schapiro indicated that the “empty-creditor” problem in credit default swaps (CDS) is of concern and that pending rules will address this with regard to proxy voting and other matters.
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