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From Banking and Finance Law Daily, June 13, 2013

House Passes Swap Jurisdiction Certainty Act

By John M. Pachkowski, J.D.

By a vote of 301 to 124, the House of Representatives has passed H.R. 1256, the Swap Jurisdiction Certainty Act which require the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to jointly issue rules that define the application of U.S. regulations to swap transactions undertaken between a U.S. entity and a foreign entity. The legislation would also require the CFTC and the SEC to develop the new rules and review the regulations of G20 member nations to determine if foreign participants, subject to a G-20 member’s swap requirements, would be exempt from U.S. regulations.

The bill was supported by 228 Republicans and 73 Democrats. On the other hand, 122 Democrats voted against the measure with only two Republican members voting “No.”

Creating certainty. In a floor statement, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) called H.R. 1256 as “a very simple and bipartisan bill” that is to create “certainty” for companies that use derivatives to hedge costs and allow someone “to go to the 7-11 and buy a six pack.”

Commonsense legislation. Following passage of H.R. 1256, Rep. Scott Garrett (R-NJ), the sponsor of the bill, said he was “very pleased that the House passed our commonsense legislation” adding, “Members from both sides of the aisle recognize that we need to restore much-needed sanity to the swaps market.”

Coherent and complementary. Rep. Mike Conaway (R-Texas) noted, “If we get the cross-border application of Dodd-Frank wrong, the swaps trade could move permanently to foreign jurisdictions, and American end users could see the costs of the financial tools they need to compete in a global marketplace dramatically increase. The Swap Jurisdiction Certainty Act will ensure that domestic and global swaps regulations are coherent and complementary, and it offers a common-sense approach with broad bipartisan support.”

Handcuffing regulators. Rep. Maxine Waters (D-Calif), Ranking Member of the Financial Services Committee, noted in a floor statement that “this bill wants to drag some of [the pre-financial crisis] activity back into the shadows, allowing banks and others once again to enter into transactions without even our regulators being able to see them. She added, “We should allow the CFTC and the SEC to do their work so we know who is doing what. We should allow derivatives rules to go into effect without further challenge. We have a responsibility to protect our country from the consequences of easily evaded rules, which this bill will create.”

Costs to SEC and CFTC. Finally, a Congressional Budget Office cost estimate, that was part of H. Rept. 113-103, Pt. 1 and H. Rept. 113-103, Pt. 2, H.R. 1256 would increase the workload of both SEC and CFTC and cost each agency $4 million since they would be required to perform the assessment of the foreign regulations and translate the regulations and supporting laws and reports for G20 member nations where English versions are not available.

MainStory: TopStory BankingOperations DoddFrankAct FinancialStability SecuritiesDerivatives

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