Committee Statement

 

The Honorable Frank D. Lucas

Ranking Member, House Committee on Agriculture

 

RE: Agriculture Committee hearing to review the Treasury's proposal for regulating OTC derivatives market, part two

 

September 22, 2009

Thank you Mr. Chairman, and thank you for holding this hearing.  I also would like to extend a warm welcome to both our witnesses today.  You two are in high demand.  I’ve watched with interest your appearance in front of other committees.  Although this is your first time in front of the House Agriculture Committee, I trust it won’t be your last.

On August 11, 2009, the Treasury Department released the Over-the-Counter Derivatives Markets Act of 2009.  Since the release, we have met with the exchange community, the dealer community, the end user community and your staffs trying to gauge the impact of this legislative proposal.  The reactions range from being generally concerned to downright opposed to the proposal. 

Most believe, as I do, that the language is rather ambiguous and confusing.  Some sections produce more questions than answers.  For instance, the plan focuses on increasing transparency and standardization in the OTC derivatives market for all product types, and recommends that all "standardized" OTC derivatives be cleared by a clearing organization or traded on an exchange. But, the plan does not specify what would constitute "standardized" as opposed to "customized" derivatives.

Also, it does not mandate that all OTC derivatives be either traded on regulated exchanges or cleared through clearing organizations.  It only mandates that as-yet-undefined "standardized" OTC derivatives contracts be cleared.

In addition, incentivizing people to use standardized swaps will result in increased capital and margin requirements for customized swaps.  Again, the administration’s proposal doesn’t provide much clarity.  The administration’s proposal is silent on how these increased costs will be calculated, who will charge the increased requirements, and who will hold the margin payment.

By no means are these the only examples of ambiguity or concern created by the administration’s proposal, but these are the issues most frequently raised.  I am anxious to learn from the regulators today so that we might be able to get some clarity as the process moves forward.

I congratulate the Chair for having the two people most responsible for implementing this language in front of the Committee so early in the process so we can get a common understanding of the proposal’s intent.

 

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