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May 11, 2011

Dear Representative,

Americans for Financial Reform is an unprecedented coalition of over 250 national, state and local groups who have come together to reform the financial industry. Members of our coalition include consumer, civil rights, investor, retiree, community, labor, religious and business groups as well as prominent economists.  We are writing to urge you to oppose H.R. 1573, a bill that would both delay implementation of the derivatives reforms in Title VII of the Dodd-Frank Act and introduce possible new exemptions to those reforms

Because of the clear connection between unregulated OTC derivatives and the worst financial crisis since the Great Depression, AFR was a strong proponent of reforms in the Dodd-Frank Act that are designed to make the derivatives markets safer and  more transparent. H.R.1573 would dangerously delay reforms that would promote greater transparency and increased safety and soundness for this systemically significant market. The legislation would also deprive regulators of tools they need today to fight market manipulation, fraud, and the excessive speculation that has introduced so much volatility into commodities markets. Market participants and regulators would continue to be denied the open information the Dodd-Frank Act promised, and the period of market uncertainty about the substance of new rules would be extended.  This bill is bad for investors and consumers, bad for taxpayers, bad for market participants, and bad for the safety and stability of our financial system.

HR 1573 proposes to delay the implementation of the Dodd-Frank derivatives reforms by an additional 18 months, until the beginning of 2013. This is a completely unnecessary intrusion on the regulatory process. The regulators currently implementing these reforms have many times stated their willingness to work with the affected parties in crafting effective rules. They have moved ahead expeditiously where appropriate, and have also been willing to delay rulemaking timelines slightly where necessary in order to give stakeholders the opportunity to engage.. For example, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) just held a two-day public round table on the implementation of derivatives reforms, and the CFTC has announced that there will be an additional month-long comment period once the full set of proposed derivatives rules is publically available so that interested parties can comment on the rule proposals in their entirety.

The implications of the additional delay proposed by HR 1573 would be far-reaching. New rules to control speculation in the oil markets would be delayed for years, so speculators could continue to drive gas prices to new heights. Prohibitions on government bailouts of derivatives dealers would be delayed until 2015, extending the time during which AIG-like bailouts would continue to be permitted. Progress toward the basic goals of bringing transparency and oversight to previously unregulated derivatives markets would be halted. Uncertainty would be increased for derivatives market participants, and also for the infrastructure providers doing the basic work of designing clearing and exchange systems for derivatives. And without the capacity to actually move forward on implementation, regulators will not be able to tell whether rules need to be adjusted or corrected to accommodate any unforeseen issues that arise for market participants.

In addition, HR 1573 would allow U.S. regulators to completely exempt foreign companies from any U.S. derivatives regulation based on their oversight by foreign regulators. This step has the potential to disadvantage U.S. companies relative to foreign competitors and create significant loopholes in the derivatives oversight regime. It is also unnecessary since regulators already have the power to harmonize U.S. regulatory rules with acceptable foreign derivatives regulations.

The delay mandated in HR 1573 is not a response to a genuine issue in reform implementation. Instead, it is an effort to weaken the first meaningful attempt to bring oversight to the unregulated derivatives markets that helped create the worst financial crisis since the Great Depression. AFR therefore urges you to oppose H.R. 1573 and similar attempts to weaken the Dodd-Frank Act.

Sincerely,

Americans for Financial Reform