While the House Committee approved legislation to delay implementation of derivatives regulation, a Senate Banking Subcommittee hearing discussed the merits and challenges of establishing derivatives clearinghouses. While there was no significant opposition to the implementation of derivatives rules in the hearing, several witnesses expressed concerns about concentration of risk and the process for implementing the rules.
CME Group Chairman Terry Duffy said that the creation of an OTC swaps clearing market should be staged in major steps and provide for adequate resources to mitigate risk. Another witness echoed that sentiment, saying the biggest challenge to derivatives clearing will be mitigating systemic risk within clearinghouses. Subcommittee Chairman Jack Reed said that his sense is that the “SEC and CFTC are moving, deliberately and responding to the industry” to implement derivatives rules and that “there was no outcry to stop it or postpone” implementation. Republican Senator Toomey said he did not oppose the creation of clearinghouses so long as implementation is sequential and there is enough time allowed for industry to adjust.
Meanwhile, despite statements at the hearing expressing concerns about a lack of progress in Europe on this issue, on May 24th, the European Parliament Committee for Economic and Monetary Affairs agreed to legislation that would require OTC derivatives to be centrally cleared. The rules, if agreed to by the full Parliament and EU member states, exempt entities which use derivatives contracts to hedge against currency and interest rate fluctuations.