Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, today introduced H.R. 2586, the Swap Execution Facility Clarification Act, which requires the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to finalize swap execution facilities (SEFs) rules that allow the swaps market to naturally evolve towards the best form of execution over time. Original co-sponsors of H.R. 2586 include Rep. Carolyn Maloney (D-NY), Ranking Member of the Financial Services Subcommittee on Financial Institutions and Consumer Credit, Rep. Robert Hurt (R-VA), Vice Chairman of the Financial Services Subcommittee on Insurance, Housing and Community Opportunity, and Rep. Gregory Meeks (D-NY).
"During consideration of Dodd-Frank, we were told that if the U.S. led the way on derivatives reform the rest of the world would follow," said Garrett upon introduction. "Unfortunately, in the area SEF rulemaking, that hasn't been the case. In fact, there is such a material disagreement between U.S. regulators and those in Europe and Asia that we now risk driving the swaps market to our foreign competitors simply because regulators have resisted providing the methods of swap execution that market participants require. This legislation will provide clarification to the marketplace that U.S. regulators will ultimately design a sustainable swap execution environment that aligns with the underlying legislative intent of Dodd-Frank."
"The entire market from buy-side asset managers, pension funds, commercial end-users, farm credit banks and rural power cooperatives to sell-side dealers and even prospective swap execution facilities seeks flexibility in obtaining price discovery and in the choice of execution," added Garrett. "My bill accomplishes exactly that while simultaneously promoting a regulatory environment where a competitive swap execution facility market can thrive in the U.S."
Regulating the execution of swap transactions in the U.S., as mandated by the Dodd-Frank Act, is the most significant market structure undertaking since 1934, and if we don't get it right, then we risk putting the U.S. at a competitive disadvantage with our foreign counterparts. While for some the goal is to have them trade with continuous pricing like the equity and futures markets, because many swaps are illiquid products with sporadic pricing, that goal simply isn't practicable at this time. H.R. 2586 is specifically designed to promote the transparent evolution of swaps trading on SEFs and help to ensure that a vibrant swap market develops in the U.S. Importantly, it also protects the confidential trading strategies of asset managers, pension funds, insurance companies, farm credit banks and the ability of commercial end-users to access the swap market to fund the long-term projects necessary to create jobs.