Patrick McHenryChairman

Washington, December 12, 2012 - Financial Services Committee Chairman Spencer Bachus today released the following statement at a subcommittee hearing on the economic impact of derivatives regulations contained in Title VII of the Dodd-Frank Act:

"The Dodd-Frank Act is comprised of 16 titles totaling some 2,300 pages.  Title VII is the Act’s longest, totaling 444 pages.   Now, obviously, the derivatives market is complex, and as a result of the actions of companies like AIG and the events of 2008, reforms were necessary.  Dealers should report their trades to a data repository or to an appropriate regulator, and dealers should submit eligible trades for clearing to a central counterparty or a registered clearinghouse.  Electronic platforms, or exchange trading, or voice brokerage should be available to market participants -- but the rules must also be flexible enough to allow all these forms of execution to flourish.  If all derivatives were supposed to be traded on an exchange then they would be futures.  Derivatives are different from exchange-listed products, and imposing the listed futures or equities market model onto derivatives is not the mandate of Title VII.   

"What concerns me a great deal about the implementation of Title VII is the conflicting definitions of 'capital' under development by the banking regulators, the SEC, the CFTC and global regulatory bodies.  The most active financial institutions in the derivatives markets may be subject to conflicting capital definitions.  The inability of U.S. regulators to speak with one voice is very troubling.  Implementation of Title VII that is not properly coordinated could have damaging consequences for U.S. markets and competitiveness. 

"Dodd-Frank is a perfect illustration of how dangerous it is for Congress to rush through important legislation.  Key portions of the derivatives title – as I mentioned, the longest title of the Act – were written in the middle of the night on the last day of the conference committee.  Two-and-a-half years after the President signed the bill into law, we still don’t know how it is going to work or even if it is going to work.

"To that end, the Financial Services Committee has successfully moved legislation — much of it bipartisan — to fix problematic sections of Title VII, including by striking provisions that would impede American businesses’ use of derivatives to ensure stable pricing and reduce volatility; fixing the indemnification provisions and the swaps push-out provision added by the Senate; and moderating the extraterritorial reach of Title VII. 

"During the 112^th Congress, our goal was to understand the potential economic, market and regulatory disruptions that Title VII could cause.   The 113^th Congress will have the opportunity to examine if the rules promulgated by the SEC and CFTC can actually work once they are operational or if we will witness regulatory chaos and a flight of capital from the U.S."