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House Reform Bill Spurs Almost 250 Amendments

DEC 8, 2009 9:09pm ET
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WASHINGTON — House Financial Services Committee members and their colleagues have drafted almost 250 amendments that they would like to see added to the Wall Street Reform and Consumer Protection Act of 2009, including one that would prohibit state and local governments and public pension funds from entering into swaps.

The amendments are pending before the Rules Committee, which is expected to permit only one to two dozen of them to be proposed during debate on the legislation, HR 4173, in the full House, which could begin today, sources said. Votes could come Friday. The legislation combines several individual bills already approved by the financial services committee and referred to several other committees.

Meanwhile, the Obama administration yesterday, in a statement of administration policy, said that it strongly supports the bill and “looks forward to continue to work with Congress ... to strengthen key provisions and to achieve successful comprehensive reform.”

With only eight to 10 days left in the legislative session, the House is moving much faster on financial services reform legislation than the Senate, where a draft bill floated last month by Banking Committee chairman Christopher Dodd, D-Conn., was substantially criticized by some Democrats and most Republicans on that panel.

Among the amendments proposed for the House bill is one by committee member Rep. Stephen Lynch, D-Mass., that states: “No public entity (including a local governmental entity, state or public pension fund) may enter into a swap or security-based swap.”

The amendment would be much stronger than the current bill, which contains a provision that would allow governments to be eligible contract participants, whose derivative transactions would not have to be exchange-traded, if they have $50 million dollars or more of discretionary investments or their counterparty is a broker-dealer or bank.

Another amendment by Rep. Bart Stupak, D-Mich., would require all swaps that are not centrally cleared to be executed on a registered swap execution facility. Derivatives in the muni market are not standardized and therefore could not be centrally cleared or exchange traded, according to most market participants.

Rep. Randy Neugebauer, R-Tex., also a member of the Financial Services Committee, offered an amendment that would allow muni financial advisers already registered and regulated by state securities commissioners or regulators to avoid having to register with the Securities and Exchange Commission.

The bill currently would require muni FAs for bond issuance and investments of proceeds, swaps, or other products that hedge risks, to be registered with, and regulated by, the SEC. However, it would exclude broker-dealers acting as underwriters.

A spokesperson for Neugebauer said yesterday that independent municipal financial advisers in Texas have complained that since they are regulated at the state level, HR 4173 creates duplicate regulation by requiring them to also register with the SEC and follow its rules.

In an amendment sure to be approved or added to the so-called manager’s amendment, committee chairman Barney Frank, D-Mass., and Rep. Steve Cohen, D-Tenn., would strike from the legislation language that would allow the Financial Industry Regulatory Authority to regulate investment advisers associated with broker-dealers. FINRA currently does not have such authority.

Several amendments deal with the rating agencies. One by committee member Rep. Michael Capuano, D-Mass., would lower the liability standard for rating agencies from “knowingly or recklessly” to “gross negligence.”

But another by Rep. Pete Sessions, R-Tex., a member of the Rules Committee, would clarify that the legislation creates no new private right of action and would not allow private citizens to sue the rating agencies.

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