James Hill, managing director of Morgan Stanley & Co. today testified before the House Financial Services Committee on draft legislation—the Over-the-Counter Derivatives Markets Act of 2009—which would bring significant reforms to the over-the-counter derivatives (OTC derivatives) market.
“There is much in the Act that SIFMA and its members support and we believe it includes many significant improvements over the Administration’s proposed legislation from last August,” Hill said in prepared testimony.
Hill expressed SIFMA’s support for measures that would improve regulatory transparency and facilitate oversight of derivatives markets and the activities of individual market participants. Among those measures, Hill said, are provisions requiring that swaps either be submitted to a derivatives clearing organization or be reported to a swap repository or reported to the CFTC. Hill noted that many major derivatives dealers had previously committed to the New York Federal Reserve to clear a greater percentage of new and historical trades through a clearing organization by the end of the year.
Hill also outlined several of SIFMA’s concerns with the legislation, including a provision that would authorize regulators to impose margin requirements on swaps in which one of the counterparties is an end user. Hill noted that while the Act generally excludes corporate end users from many provisions in the Act, thus allowing corporations to continue to use these tools for managing their risk without significant burden, this provision would create an added cost for end users.
Among other concerns SIFMA had, Hill noted, was the overly broad definition of a “swap dealer,” the imposition of new capital and margin requirements with respect to cleared swaps, and the Act’s treatment of security-based swaps.
Hill’s full testimony can be found at the following link: http://www.sifma.org/legislative/testimony/testimony.html
