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

Moody’s: Mid-term elections dim federal fracing regulation prospects

12/18/2014 Results of 2014’s congressional elections have reduced the prospect of the federal government enacting its own hydraulic fracturing regulations, Mo...

Apache awarded Western Australia offshore permit

12/18/2014 A day after reporting its planned divestment of Western Australian and Canadian assets to Woodside Petroleum Ltd., Apache Corp. has been awarded a ...

Thirty-one House Democrats ask Jewell to bar leasing in Arctic Ocean

12/18/2014 US Rep. Jared Huffman (D-Calif.) and 30 other House Democrats urged US Interior Sec. Sally Jewell to reject the second supplemental environmental i...

Obama makes Alaska’s Bristol Bay off-limits for oil, gas activity

12/17/2014 US President Barack Obama placed Bristol Bay off-limits for future oil and gas leasing, extending a temporary withdrawal he imposed in 2010 that wa...

Severance tax would backfire, Pennsylvania association leaders warn

12/17/2014 Enacting a severance tax aimed at Pennsylvania’s unconventional natural gas activity would substantially harm the commonwealth beyond the industry ...

New York state moves to ban hydraulic fracturing

12/17/2014 High-volume hydraulic fracturing will be banned in the state of New York, Gov. Andrew Cuomo’s administration announced Dec. 17, citing health risks...

BPC report examines 40 possible options to reform RFS

12/16/2014 The Bipartisan Policy Center issued a report outlining 40 possible options for reforming the federal Renewable Fuels Standard in an effort to move ...

Senate passes Defense bill with BLM drilling permit program provision

12/15/2014 The US Senate approved a Department of Defense appropriations bill on Dec. 13 containing a provision extending and making permanent a drilling perm...

Mitigating methane

12/15/2014

Among greenhouse gases, methane should be particularly amenable to deliberate cuts in emissions.

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


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