Amended commodities reform bill clears House FS panel

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Oct. 16 -- The US House Financial Services Committee approved a bill on Oct. 15 that would regulate over-the-counter trades in commodity markets for some—but not all—participants. Energy producers and consumers using commodity hedges to control prices apparently would be exempt.

The exemption was part of a manager’s amendment offered by the committee’s chairman, Barney Frank (D-Mass.), which clarifies that the bill’s marginal requirements would allow use of noncash collateral for commodity hedges. Independent producers have said that this is essential so they can continue using their reserves instead of cash. Airlines and other commercial fuel customers also support an exemption.

The administration of US President Barack Obama indicated earlier in the week that it could support an exemption for such commercial commodities traders after initially opposing it. Top officials at the US Commodity Futures Trading Commission and the US Securities and Exchange Commission, which would be jointly responsible for enforcing any new OTC commodities regulations, apparently remain uncomfortable with it.

One committee member said the provision is a step in the right direction because it addresses a lot of end-users’ concerns. “Still, the language still is unclear in that regulators can still require them to meet the cash requirement,” observed Scott Garrett (R-NJ). The committee adopted Frank’s amendment by voice vote.

The bill, HR 3795, passed by 43 to 26 votes, largely along party lines. It is aimed primarily at swaps, which are contracts that call for an exchange of cash between two counterparties based on an underlying rate, index, credit event, or the performance of an asset, according to information provided by the committee’s majority staff.

Major participants
Trades between dealers and major market participants would have to be cleared on regulated exchanges or electronic trading platform if the measure becomes law. The bill defined a major market participant as a person or entity which maintains a substantial net position in swaps, exclusive of hedging for commercial risk, or which has a position creating such significant exposure to others that it requires monitoring.

Regulatory authority would be split between CFTC, which has jurisdiction over swaps, and SEC, which regulates securities-based swaps. The US Treasury would have authority to issue final rules if CFTC and SEC were unable to decide on a joint approach within 180 days. The two commissions would have to jointly approve subsequent interpretations of rules.

Frank said leaders from his committee will try to help resolve such questions later in meetings with the House Agriculture Committee, which plans to consider its own commodities reform bill on Oct. 21. Its chairman, Collin C. Peterson (D-Minn.), introduced a discussion draft on Oct. 9 which addressed OTC clearing, trading, capital and margin requirements, and position limits. The draft attempted to build on HR 997, an OTC regulatory bill which the committee passed earlier this year.

“We have been working throughout with the Agriculture Committee, which has jurisdiction over the CFTC. There are some issues which can’t be resolved by one committee, particularly when they are jurisdictional in nature. We will deal with them later,” said Frank. US Senate committees also are preparing commodities reform measures.

Positions had changed heading into the markup, Frank conceded. Paraphrasing Otto von Bismarck, chancellor of the German Empire during the late 19th century, the chairman said: “Watching sausage being made, and watching legislation being made, isn’t always attractive. There clearly has been a lot of give-and-take here. People who have been trying to fix the position of any one member at any given time have been mistaken because everyone has tried to work with an open mind.”

Other responses
Republicans on the committee remained critical. Spencer T. Bachus (Ala.), the ranking minority member, conceded following the vote that his three proposed amendments became part of the final bill. They would extend the implementation period of the legislation from 180 days to 270 days after enactment, provide SEC and CFTC with exemptive authority similar to current law; and perhaps most importantly, to prevent taxpayer funded bailouts of clearinghouses. All were adopted by voice vote.

But the bill still increases government regulation, Bachus continued. "One of the lessons from the crisis is that we need smarter regulation, not more regulation. We need to close the gaps in regulation, not add layer upon layer on existing legislation,” he said.

“The new system of complex regulation will place American businesses and the economy at a disadvantage,” Bachus said. "The committee has heard from companies that use derivatives to manage risk that the Democrats' legislation will drive up costs for the whole economy and could lead to capital restraints for users of derivatives. That is why Republicans offered amendments to ensure the legislation is workable and less disruptive to the economy. Unfortunately, in the end, overregulation trumped sound policy.”

CFTC Chairman Gary G. Gensler said following the vote that the House FS committee’s action “represents historic progress toward comprehensive regulatory reform of the over-the-counter derivatives marketplace,” adding, “The committee’s bill is a significant step toward lowering risk and promoting transparency.”

Significant challenges remain, he added. “I look forward to building on this committee’s hard work with Chairman Frank, Chairman Peterson, and others in the House and Senate to complete legislation that covers the entire marketplace without exception and to ensure that regulators have appropriate authorities to protect the public,” Gensler said.

Contact Nick Snow at nicks@pennwell.com.

Related Articles

EPA suggests DOS reconsider Keystone XL climate impact conclusions

02/03/2015 The US Department of State might want to reconsider its conclusions regarding potential climate impacts from the proposed Keystone XL crude oil pip...

Obama’s proposed fiscal 2016 budget recycles oil tax increases

02/02/2015 US President Barack Obama has proposed his federal budget for fiscal 2016 that he said was designed to help a beleaguered middle class take advanta...

So much for cooperation

02/02/2015 Congressional majority leaders and the Obama administration came into 2015 pledging to at least try to be less combative and more cooperative in ru...

Woodside gets NEB approval for British Columbia LNG exports

02/02/2015 Woodside Energy Holdings Pty. Ltd. has received approval from Canada’s National Energy Board on its application for a 25-year natural gas export li...

Data refute Lew's claims about taxes paid by producers

02/02/2015

On the subject of taxation, administration officials count on the public to believe anything.

Kerry expects to receive other agencies’ Keystone XL reports soon

02/02/2015 US Sec. of State John F. Kerry said he expects to receive other federal agencies and departments’ reports soon on the proposed Keystone XL crude oi...

Iran yields to Russia in talks over Caspian resources

02/02/2015 Iranian acquiescence to Russia, to which the Islamic Repubic increasingly turns in response to pressure from the West, has become a standard featur...

US oil, gas industry eager to build on past successes

02/02/2015 The US oil and gas industry entered 2015 optimistically as a dramatically improved US supply outlook's economic and security benefits became increa...

The ANWR blitz

02/02/2015 Deception begins with a 58-sec video on the White House web site in which President Barack Obama says he'll ask Congress to make the whole Arctic N...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Cognitive Solutions for Upstream Oil and Gas

When Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

When Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST



On Demand

Prevention, Detection and Mitigation of pipeline leaks in the modern world

Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST


Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected