Derivatives and Structured Products Practice
With the battle over healthcare finally behind it, Congress
is moving forward with its plan to implement financial reform legislation,
including regulation of the derivatives industry. Sen. Chris Dodd (D-CT) has
spearheaded the most recent round of discussion in this area, proposing a
revamped financial regulatory reform bill on March 15, 2010 (Dodd Bill). The
release of the Dodd Bill followed weeks of intense negotiation with both
Democratic and Republican senators, as members of both parties attempted to
create a bipartisan draft of the proposed bill. Bipartisan efforts ultimately
failed, and Sen. Dodd pressed forward with his own bill in hopes of bringing it
to the Senate Floor at the end of April. Notably absent from the Dodd Bill were
any significant changes to Sen. Dodd's prior legislative proposal for the
regulation of derivatives. As a result, market participants are now shifting
their focus to the Senate Agriculture Committee's long-awaited version of
derivatives legislation, which many expect to contain the final terms of a
bipartisan bill in the Senate.
The Dodd Bill continues the debate over various legislative
proposals aimed at reforming the financial system that could dramatically
change the way the over-the-counter (OTC) derivatives industry operates. These
proposals, if enacted, will initiate a new regulatory regime to govern OTC
transactions, which have been lightly regulated in the past. Notably, each of
the proposals contemplates new registration, capital, disclosure and reporting
requirements for OTC dealers; a new category of regulated entity "Major Swap
Participants" subject to regulation akin to that to be imposed on OTC dealers;
required clearing, including margin requirements for most OTC transactions; and
the imposition of new position limits on both exchange-traded and certain OTC
swaps. The most viable legislative proposals, including Sen. Dodd's prior bill,
the Restoring American Financial Stability Act of 2009 (Prior Dodd Bill) and
H.R. 4173 were summarized and compared in our January 7, 2010, Legal Alert.
The
Dodd Bill only slightly revises the Prior Dodd Bill and is not likely to
curtail the debate. Most of the changes were made to bring the Dodd Bill more
closely in line with the financial regulatory reform bill enacted by the House
of Representatives in December 2009-The Wall Street Reform and Consumer
Protection Act of 2009 (H.R. 4173) (House Bill). Attached is a chart that includes a comparison of the derivatives provisions in the Dodd
Bill to those in the Prior Dodd Bill, the House Bill, and the Obama
Administration's proposal for derivatives regulation, put forth under the
auspices of the Treasury Department.
Although the Dodd Bill represents a sustained effort in
Congress to regulate derivatives, we do not expect its provisions to be fully
enacted as currently drafted. Sens. Jack Reed (D-DE) and Judd Gregg (R-NH) have
already announced that they are working on a bipartisan replacement for the
derivatives portion of the Dodd Bill. More significantly, it is expected that
Sen. Blanche Lincoln (D-AR), chairman of the Senate Committee on Agriculture,
Nutrition and Forestry (the Senate Committee that has had primary
responsibility for legislation regarding the OTC markets and the Commodity
Futures Trading Commission), will submit a draft bill addressing derivatives
regulation in the near future. The prospect of a new bill proposed by Sen.
Lincoln, coupled with the announced negotiation of a revised Dodd Bill by
Senate Banking Committee Democrats and Republicans, make it likely that
significant changes will be made to the Dodd Bill in the final legislation.
The
Obama Administration is pushing to have a comprehensive financial regulatory
reform bill ready for the President's signature by Memorial Day. However, due
to the complexities of this legislation, this deadline may be overly ambitious.
We will continue to monitor the changing landscape of potential derivatives
regulation, and keep you apprised of the latest developments.
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If
you have any questions regarding this alert, please feel free to contact any of
the attorneys listed below or the Sutherland attorney with whom you regularly
work.
James M. Cain 202.383.0180 james.cain@sutherland.com
Paul B. Turner 713.470.6105 paul.turner@sutherland.com
Warren N. Davis 202.383.0133 warren.davis@sutherland.com
William H. Hope II 404.853.8103
william.hope@sutherland.com
Robin J. Powers 212.389.5067 robin.powers@sutherland.com
Mark D. Sherrill 202.383.0360 mark.sherrill@sutherland.com
Doyle Campbell 212.389.5073 doyle.campbell@sutherland.com
Richard E. Grant 202.383.0909 richard.grant@sutherland.com
Meltem F.
Kodaman 202.383.0674 meltem.kodaman@sutherland.com
© 2010
Sutherland. All Rights Reserved. This communication is for general
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