Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, applauded the bipartisan support H.R. 2586, the Swap Execution Facility Clarification Act, received today during markup in the Financial Services Committee. Introduced in July by Garrett, H.R. 2586 requires the Commodities Future 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).
"This bill will ensure that one of the most egregious examples of regulatory over-reach in implementing Dodd-Frank does not become a reality, and thus, a drag on American job creation," said Garrett after the vote. "With our economy on the ropes, we need to do all we can to ensure we do not intentionally shoot ourselves in the foot with overzealous regulations that will stifle job creation and economic growth when we need it most. I was encouraged to see so many of my colleagues across the aisle join us in support of this important bill. It proves that while we may not have agreed on Dodd-Frank when it passed Congress, we can all agree that regulators should be reined in when they clearly go against the intent of Congress and threaten long-term damage to our economy."
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.
H.R. 2586 prohibits the CFTC and the SEC from interpreting the SEF definition to: 1.) require a minimum number of participants to receive or respond to quote requests, 2.) require a SEF to display or delay quotes for any specific period of time, 3.) limit the means of interstate commerce that market participants can use to execute swap transactions, or 4.) require one trading system (i.e. RFQ) to interact with another trading system (i.e. Limit Order Book) on the same SEF. These prohibitions are necessary to preserve investor choice of execution, promote transparent price discovery for market participants, and decrease the costs of hedging for American businesses, farmers, and retirement plans, all of which contribute to economic growth and job creation.
The Swap Execution Facility Clarification Act has already received support from a wide spectrum of market participants, including:
Investment Company Institute (ICI)
American Benefits Council
Coalition for Derivatives End-Users
Securities Industry and Financial Markets Association (SIFMA)
Wholesale Market Brokers' Association of America (WMBAA)
The Committee on Investment of Employee Benefit Assets (CIEBA)