Yesterday, the House Committee on Financial Services held a mark up of the OTC Derivatives Markets Act of 2009, which was proposed by Congressman Barney Frank (D-MA), Chairman of the House Financial Services Committee, on October 2nd.
Chairman Frank opened the mark up with an overview of his proposed amendment to the draft legislation. Generally, he said that his amendment would make further concessions to end-users - companies that use derivatives to hedge their business operations, such as airlines, manufactures and farmers. More specifically, the proposed amendment addresses issues such as flexibility in setting margin requirements for customized trades, the process for determining which swaps must be cleared, applicability of the exemption from the clearing requirement to firms that use swaps for risk management purposes, and treatment of foreign markets and participants.
Democrats generally supported the proposed legislation, as amended, stating that it achieves its goal of promoting greater transparency and accountability while preserving the ability of businesses to hedge risk. Republicans, on the other hand, argued that the over-the-counter (OTC) market is not the cause of the current financial crises and suggested other ways to increase transparency. Representative Garrett (R-NJ) proposed an alternative to Chairman Frank’s bill that would address transparency through a trade repository for all OTC trades. Representative Garrett’s proposal would also require prudential regulators to take swap activities into account when setting capital requirements. Other Republicans expressed concern that Chairman Frank’s proposal would cause job losses at a time when Congress should be focusing on job creation. The Democrats countered that jobs will come when confidence is returned to the marketplace. Republicans also objected to Chairman Frank’s proposal on the basis that it will be too expensive for many end users, lead to greater volatility in food and energy prices, and discourage innovation.
The Committee approved the bill and amendment this morning.