House Republicans Move to Push Derivatives Rules to 2012

U.S. House Republicans moved to delay for 18 months all rulemakings involving derivatives under the Dodd-Frank financial regulation law.

Four Republican lawmakers representing the Financial Services and Agriculture committees introduced legislation to extend the deadlines the Securities and Exchange Commission and Commodity Futures Trading Commission are facing as they write scores of new rules aimed at providing more transparency in the $583 trillion international over-the-counter swaps market.

“The CFTC has placed speed over deliberation,” Representative Michael Conaway of Texas, one of the authors, said at a House Agriculture Committee hearing on April 13.

The legislation’s chance of becoming law may be small. House Republicans would need the support of the Democrat-led Senate and White House to push the idea forward.

President Barack Obama signed the Dodd-Frank Act into law last year in the wake of the worst financial crisis since the Great Depression. Reining in the trading of derivatives, which are financial instruments based on the value of another security or benchmark, was a primary goal of House and Senate Democrats when they wrote the legislation.

House Republicans, who took power in January, have pushed to revise -- and in some cases repeal -- the Dodd-Frank law. Committee chairmen Spencer Bachus of Financial Services and Frank Lucas of Agriculture have pushed the SEC and CFTC to slow down the rulemaking process. Most of the rules required by the new law are due by mid-July.

The legislation introduced today would line up the timing with the Group of 20 finance ministers’ agreement that reform must be implemented by December 2012.

‘Competitive Disadvantage’

“There is no need to rush and meet arbitrary deadlines when the rest of the world is at least 18 months behind the United States,” Bachus, of Alabama, said today in a statement. “This bill will ensure that the United States is not placed in a competitive disadvantage compared to the rest of the world. Despite the best efforts of the regulators, the rules have not been proposed in a logical sequence, and if implemented on the current timeframe, could weaken U.S. markets during a period of economic recovery.”

Before completing the rules, according to the legislation filed today, the agencies would be required to hold public round-tables and solicit comments from the financial industry about the time and resources it would take to comply with the regulations.

Regulation Costs

The CFTC has drawn criticism from Republican lawmakers, the CME Group Inc. (CME) and others in the financial industry for not adequately estimating the costs of regulations.

“If the regulators get this wrong, it will be difficult -- if not impossible -- for businesses of all shapes and sizes to responsibly hedge their risks, and trading will be forced off of U.S. markets to those overseas,” Representative Scott Garrett, a New Jersey Republican and member of the Financial Services committee, said in a statement.

CFTC spokesman Scott Schneider and SEC spokesman John Nester declined to comment on the legislation. The SEC and CFTC will hold a May roundtable to discuss appropriate dates for the implementation “with an emphasis on getting the derivatives rules right,” Nester said.

CFTC Commissioner Bart Chilton, a Democrat, said in an e- mail today that “the urgency Congress has already placed on getting reforms implemented is just as important today as it was when this good and needed legislation became law.”

The Financial Services panel is tentatively scheduled to mark up the derivatives legislation on May 12.

To contact the reporters on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net; Silla Brush in Washington D.C. at sbrush@bloomberg.net;

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

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