Wednesday, August 14, 2013

August 2013 Financial Services Legislative Update


Author: David Schwartz J.D. CPA David Schwartz J.D. CPA

As they depart for the August recess, Congress has left some financial regulatory issues open to occupy their time upon their return next month.  Bills addressing high frequency trading, exempting banks as municipal advisers, and relief for brokers engaging in private mergers and acquisition transactions remain open items for the new session.  In addition, Congress is still waiting for answers from the SEC and CFTC regarding new cross-border derivatives regulations.


H.R.2292: Protection from Rogue Oil Traders Engaging in Computerized Trading Act

This bill is intended to provide the CFTC with some with the authority to place some basic rules on high frequency trading and empower federal regulators to halt some high frequency trading practices in instances when they pose a threat to market integrity or to companies using the futures markets to hedge business risks. Among other things, the law would require high frequency traders involved in commodities to register with the CFTC and to establish internal trading safeguards. In addition, the legislation would:

  • ban simultaneous buy and sell orders by high frequency traders in commodities, 
  • give the CFTC authority to set business standards to limit fraud, manipulation, and other disruptive practices in HFT, and
  • authorize the CFTC to fine HFT traders based on the amount of time of their violation.


H.R. 2274: Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2013

Concerned that the merger and acquisition activities of smaller privately held firms could be unnecessarily burdened by broker registration requirements, Rep. Bill Huizenga (R-MI) has proposed H.R. 2274.  This bill would would authorize the SEC to create a simplified system of registration through a public notice filing on the SEC’s website, and would require appropriate client disclosures about M&A brokers and their associates. The bill would also instruct the SEC to tailor its rules governing M&A brokers based on the scale and scope of their activities, the nature of privately negotiated M&A transactions, and the level of active involvement of buyers and sellers in those M&A transactions.


S. 710: The Municipal Advisors Relief Act


In a recent letter to the Senate, the American Bankers Association objected to banks and savings institutions being required to register as municipal securities advisers.  They believe that the requirement is duplicative and burdensome. In their letter, the ABA reasoned that Congress did not intend for banks and savings institutions that are already supervised and examined under a different regulatory regime to be regulated as municipal advisors. In response, Mark Warner (D-VA) and Senator Pat Toomey (R-PA) have proposed legislation that would exempt banks and savings and loans from regulation as municipal advisors under Section 975 of the Dodd Frank Act. A companion bill, H.R. 797, has been introduced in the House by Rep. Steve Stivers (R-OH) and Rep. Gwen Moore (R-WI)


Cross-Border Dervivatives Regulations

Key members of the Senate remain very concerned that the new SEC and CFTC cross-border swaps regulations may allow U.S.-based financial firms to escape swaps U.S. oversight simply because the companies' swaps trading activities are conducted through an offshore affiliate or branch. In a July 3, 2013 letter from Senator Jeff Merkley (D-OR) and Senator Carl Levin (D-MI), as well as Senators Tom Harkin (D-IA), Elizabeth Warren (D-MA), Jeanne Shaheen (D-NH), Barbara Boxer (D-CA), Richard Blumenthal (D-CT), and Dianne Feinstein (D-CA), the senators raised their objections to the "substituted compliance" regime embraced by the regulators.

Unfortunately, the current proposals to implement these much-needed reforms fail to address a large and serious risk . . . Both of your agencies’ proposals would allow U.S. firms to skirt the entire U.S.-based swaps regulatory regime (including any U.S. requirements for substituted compliance) simply by engaging in ‘non-guaranteed’ trading through foreign subsidiaries. The history of the financial crisis tells us that drawing regulatory distinctions based on narrow criteria, including over what today is believed to be ‘guaranteed’ or not, is a recipe for creating, not reducing, systemic risk.
Congress has much on its plate when it returns after the August recess.  These bills, issues, and many other tweaks and wholesale changes to Dodd-Frank are expected to be revived upon Congress's return.
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