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From Securities Regulation Daily, November 7, 2014

Dodd-Frank fixes will move in next Congress, insiders say

By Lene Powell, J.D.

A panel of Washington insiders at a futures industry conference generally agreed that a number of freestanding derivatives bills that passed the House this session will see movement in the next Congress, although bill packaging matters. If bills that make narrow technical, bipartisan fixes are broadened to include more contentious issues such as reforming the CFPB and auditing the Fed, they will have less chance of enactment.

General outlook. A.B. Stoddard, associate editor and columnist at The Hill, said what emerges from the midterm election results is that voters are looking for change, but have no hope it’s going to come. Republicans as a group have lower approval ratings than Democrats or President Obama, but voters chose them. In a change from victorious waves of the past where there has been a clear mandate, voters elected the party they trust the least. This was a rout that appeared to be a big surprise to President Obama, who appears to be in “some form of denial.”

One view has it, said Stoddard, that Sen. Mitch McConnell’s goal is to make sure that nothing gets done in the next two years, because he has figured out that only big issues—not gridlock— cause power shifts. Also, Hillary will be putting pressure on Obama not to work with Republicans. Thus, Obama will be under pressure to choose between his legacy and his party. The lame duck session will be consequential. If Obama acts aggressively, as for example taking executive action on immigration reform, he will poison relations with Republicans.

Derivatives reform. According to former CFTC Commissioner Jill Sommers, now a senior advisor at Patomak Global Partners, changes to Dodd-Frank are in the top 10 list for the Republican agenda. Bipartisan support for the previously passed House derivatives bills will put a lot of pressure on Obama. Rostin Behnam, senior counsel on the Senate Agriculture Committee, agreed there is support for “tweaks and technical corrections,” saying there is “common ground for sure” on Title VII reform, especially concerning end user issues and customer protection. However, Paul Thornell, managing director of government affairs for Citigroup, isn’t convinced that Dodd-Frank issues are the big priority for Sen. Richard Shelby, who is poised to take over leadership of the Senate Banking Committee.

The CFTC has taken action on some key issues this fall, somewhat reducing the pressure for legislation, said Behnam. For example, the CFTC and the prudential regulators proposed rules for margin for uncleared swaps in September. Two remaining issues are capital rules and a swaps push-out requirement, which would require banks registered as swap dealers to transfer certain swaps activities to affiliates that are not eligible for deposit insurance or access to the Fed discount window. Industry has requested relief from the push-out rule, but there is not as much bipartisan agreement on this issue as others. It will be taken up in the Senate for sure, said Behnam.

Thornell sees a willingness on the part of CFTC Chairman Massad to work with Republicans, and he will work to secure funding for the agency. Dodd-Frank rulemaking is mostly already done, and Massad will likely maintain a steady-as-it-goes atmosphere.

CFTC reauthorization. Under the Commodity Exchange Act, the CFTC is supposed to be reauthorized every five years, but the last reauthorization was in 2008, so it is overdue. Behnam said that in this, the first reauthorization bill since Dodd-Frank, corrections will naturally be included, but it is important to make sure the fixes are narrow. If you start throwing in broader issues, you start to lose bipartisan support, he said.

As for the CFTC budget, Sommers noted that under either a continuing resolution scenario or an omnibus bill, the CFTC has been getting funding increases almost every year. She thinks the CFTC will do “just fine” if there is a continuing resolution until March, but everybody is hopeful that there will be an omnibus bill, in which case the CFTC will come out very well. Behnam said CFTC funding and resources will continue to be a priority for Sen. Debbie Stabenow.

Asked whether the CFTC can regain industry trust that was lost by former CFTC Chairman Gary Gensler, Sommers said it is already happening, adding that Chairman Massad has acted in a very positive way.

MainStory: TopStory Derivatives CommodityFutures Swaps CFTCNews

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