The Financial Services Committee, chaired by Rep. Spencer Bachus, approved legislation on May 24 to give regulators additional time to write and review the rules governing derivatives. H.R. 1573, approved by a vote of 30 to 24 (along party lines), is said to address concerns raised by both Republicans and Democrats that the proposed Dodd-Frank rules governing derivatives could put U.S. firms at a competitive disadvantage to their foreign competitors. The bill extends the rule writing deadlines on some provisions but leaves the Dodd-Frank Title VII reforms intact. The legislation maintains the current timeframe for defining the key terms as well as the rules requiring reporting of all over-the-counter contracts.
Financial Services Committee Chairman Spencer Bachus said, ‘This is a common-sense bill that gives regulators additional time and information to engage in the proper due diligence needed to get the derivatives rules right from the start. H.R. 1573 will provide regulators with vital information about derivatives transactions to ensure transparency and market safety.”
Industry leaders such as the Petroleum Marketers Association of America, New England Fuel Institute and National Association of Convenience Stores have a different viewpoint, seeing this as basically a ‘kill bill” brought about by heavy lobbying from the financial industry to eventually kill Dodd-Frank. As PMAA noted in a press release on the advancement of the bill:
PMAA opposes the legislation because it delays implementation of critical reforms to the oil futures market ‘ although its potential impact was weakened by amendments adopted yesterday. While the deadline for the Commodity Futures Trading Commission’s (CFTC) proposed rules is July 21, 2011, the deadline is expected to be exceeded for at least several months.
Delaying implementation of Title VII would allow the big banks and hedge funds to continue their dominance in the futures marketplace, compared to end-users who need the market to hedge effectively. PMAA argues that speculators need to reduce their positions in the futures market because they are overwhelming a finite supply of product that was created for hedgers (petroleum marketers, airlines, farmers) who need to use the futures market to plan ahead.
PMAA supports an all-of-the-above approach to reduce oil prices both in the short and long term. Although the bill as amended would not delay imposition of position limits, it would delay imposition of aggregate position limits, which would delay the reduction of excessive speculation. Reduction of excess speculation will lead to the dampening effect on prices at the pump, so any delay is harmful.
Notable amendments adopted yesterday include language offered by Representative Scott Garrett (R-NJ) that reduces the maximum delay from 18 months to 15 months and an amendment offered by Stephen Lynch (D-MA) that prevents delay of any authority that SEC and CFTC have to address speculative Trading.
The bill is expected to die because of a lack of interest in the Senate. Regardless, this issue is one that merits attention from industry members. Contact PMAA, NEFI or NACS for information on how to best influence this process.