June 18, 2010
To Members of the H.R. 4173 Restoring American Financial Stability Act of 2010 Conference Committee
Re: Opposition of the Fed to regulate Securities, Futures and Derivatives Clearinghouses
Dear Conferee:
The over 250 consumer, employee, investor, community, small business and civil rights groups who are members of Americans for Financial Reform (AFR) write to express our opposition to language that would authorize the Fed to effectively regulate securities, futures and derivatives clearinghouses.
“The central tenet of the new Congressional framework for bringing the $600 trillion risky derivatives market into a framework of capital adequacy and transparency is the requirement that standardized derivatives be cleared and exchange traded.
Currently, clearing organizations for futures and securities are overseen by the market regulators: the CFTC and the SEC.
Within the House and Senate bills before the Conference Committee are critically important improvements to the CFTC’s regulation of clearing organizations for futures and standardized derivatives.
The financial reform bills fill a gap in regulation of payment systems by providing missing clear cut authority to the Federal Reserve to oversee inter-bank payment systems. The Senate bill, however, goes further by authorizing the Fed to effectively regulate securities, futures and derivatives clearinghouses.
This Fed provision was dropped from the House bill when the CFTC and SEC testified that, at best, this would create confusion over which agency is the appropriate derivatives clearing house regulator; at worst, the Senate bill would remove this clearing house oversight authority from the CFTC and SEC where it has long been placed.
The historical expertise of the SEC and CFTC in overseeing securities and derivatives clearing houses must not be displaced. Both of those agencies have repeatedly assured Congress that they would vigorously oversee the clearing houses in question and they have expressed a commitment that they will also ensure that the maximum number of standardized derivatives will be cleared and exchange traded. The Fed has not made a similar commitment to such vigorous regulation.
Indeed, the Fed appears to be sympathetic to Wall Street’s desire to have the maximum number of standardized derivatives be free of clearing and exchange trading.
We strongly endorse the approach of the House bill to this issue — that is, assuring that the SEC and CFTC retain their historic and exclusive oversight of these clearing facilities.”
Thank you for considering the Americans for Financial Reform position on these important issues. For more information on derivatives reform, please contact Heather Slavkin, AFL-CIO, at 202-637-5318 or hslavkin@aflcio.org.
Sincerely,
Americans for Financial Reform