The chairmen of the House Financial Services Committee, Rep. Spencer Bachus (R-AL), and the House Agriculture Committee, Rep. Frank Lucas (R-OK), last week introduced H.R. 1573, which would extend the deadline by 18 months for implementing the derivatives portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The chairmen of the Financial Services Capital Markets Subcommittee, Rep. Scott Garrett (R-NJ), and the Agriculture General Farm Commodities and Risk Management Subcommittee, Rep. K. Michael Conway (R-TX), also co-authored the bill and are listed as original sponsors. The bill is currently under consideration and action is expected in the coming days.
The extension would give the regulatory agencies more time to effectively meet the objectives of the derivatives title, prioritize deliberation over speed, consider the costs and benefits, and understand the cumulative impact of the rules. The bill also would realign the U.S. with the G20 agreement to implement derivatives reform by December 2012.
The derivatives provisions of Dodd-Frank will impact every segment of the economy. The bill reflects the concerns of thousands of end-users who use derivatives to manage the risks faced every day. On April 8, AFP and several other organizations sent a letter to Congressional leaders urging Congress to extend the deadline for issuing final rules on derivatives reform to allow regulators sufficient time to develop a transparent and orderly system that minimizes unintended consequences.
Passed in 2010, the Dodd-Frank Act implemented sweeping changes to the regulation and functioning of the OTC derivatives market. AFP members fully support the idea of improving the regulations and improving the ability to manage and minimize systemic risk. However, AFP members are concerned that the reform focused on the much publicized and more speculative uses of derivatives.
As an unintended result of Dodd-Frank, businesses that used derivatives responsibly to contain costs and manage risks associated with their ongoing business operations, as well as their shareholders, are at risk of losing the benefit of these risk management strategies. Additionally, AFP members are concerned with the ambiguity of some provisions and subsequent rules relative to the posting of margin as mandated by Dodd-Frank.
To view the joint letter in its entirety, visit: http://www.afponline.org/pub/pdf/Joint_Derivatives_Extension_Letter_April_2011_pdf.pdf.
Jeanine H. Arnett is AFP's Director of Government Relations and Public Policy.