SEC's Hu: Rep. Frank's Derivatives Bill Still Leaves Gaps
06 Outubro 2009 - 8:10PM
Dow Jones News
A top U.S. Securities and Exchange Commission official on
Wednesday will tell congressional lawmakers that a draft
over-the-counter derivatives bill would weaken the agency's
antifraud and market-manipulation authority.
Henry T.C. Hu, who was just recently tapped by SEC Chairman Mary
Schapiro to head the agency's new division of risk, strategy and
financial innovation, will outline his concerns about House
Financial Services Chairman Barney Frank's draft proposal at a
hearing Wednesday.
In prepared testimony, Hu said that Frank's bill would
"inadvertently weaken the SEC's anti-fraud and anti-manipulation
authority" and appears to "enable significant regulatory
arbitrage."
"The SEC must have the necessary tools to effectively exercise
its authority," Hu said. "This authority should be expanded to
include central counterparties and swap repositories, so that the
SEC can have quick access to comprehensive data on all
securities-related over-the-counter derivatives."
Frank's draft bill, which was circulated Friday, contains many
of the same elements of the Obama administration plan, but differs
significantly because it does not require all standard derivatives
to be traded on regulated platforms and it would allow many more
companies to qualify for exemptions from the clearing
requirements.
Frank's proposal focuses more on regulating big swap dealers
like Goldman Sachs Group Inc. (GS) or Morgan Stanley (MS) and major
traders who hold a significant number of positions.
But in likeness to the Obama plan, his proposal would still
require major market players to have their standard contracts
processed through clearinghouses, which guarantee trade. Customized
products not being cleared, meanwhile, would face stiffer capital
and margin charges in an effort to entice traders to move onto
regulated exchanges. All trades, both standard and customized,
would also be reported to a central trade repository to help
promote more post-trade price transparency and the SEC and
Commodity Futures Trading Commission would both oversee the
marketplace.
Part of the problem with the bill, Hu said, is how it divides
jurisdiction over swaps between the SEC and CFTC. Like the
administration's plan, it would give the SEC authority over swaps
referencing single securities and narrow-based indexes while giving
the CFTC power over swaps referencing broad-based security
indexes.
In addition, he said, the draft would regulate swaps differently
from futures or stocks and also fails to define security-based
swaps as securities under the Securities Exchange Act. Without
including security-based swaps in that key law, Hu said, it will be
harder to apply certain anti-fraud provisions including
insider-trading.
Separately, Hu also questioned Frank's decision to deviate from
the Obama plan and provide a broader group of end-users with the
ability to get exemptions from the clearing requirements.
"A narrower, objective and verifiable standard would be more
consistent with the purposes of the legislation," he said.
Still, he noted, the bill represents a "significant step toward
addressing current problems" in the over-the-counter market.
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;
sarah.lynch@dowjones.com.