Last week, we shared 9 improvements we would like to see in the Senate derivatives legislation.  We’ve felt bold enough to do this in large part because there is so much agreement from businesses and trade associations on these issues, and because these problems in the Senate text are not insignificant.

Chatham has entered this public policy debate to not only seek the best interests of our clients, but also to leverage our independent position and experience as advisor to over 1,000 end user companies to help Congress improve the markets and promote financial stability.

If you’ve ever asked, “Are we alone?” or “Are we extreme?” in this debate, you can hopefully take comfort in knowing who has come around to embrace similar views.  After reading through our recommendations on the recently-introduced amendments, please see the bottom of this newsletter to see who is agreeing with you (and us).

Amendments In Process – Here Are the Big Ones:

Since many Democrat and administration ideas are already included in the Senator Lincoln-led derivatives text, amendments will likely come from Republicans.  Here are the big ones so far that we encourage you to support:

Alternative Bill – Senate Amendment #3816 (SA3816) is an alternative derivatives bill crafted by Senate Banking and Senate Agriculture Republicans.  It certainly addresses the problems in the derivatives market, and it also addresses all “Nine Improvements Needed in the Senate Derivatives Bill”.  This is a well crafted derivatives title, and we hope it influences the debate even if it doesn’t pass.  We encourage you to support this amendment.

Expansion of End User Clearing Exemption – A “To be offered” amendment from Senator Chambliss will allow firms that are not a risk to the financial system to be eligible for the clearing exemption.  Two main categories of end users that will be helped by this amendment are commercial real estate firms and non-systemically important financial end users.  This amendment will address our #1 and #2 items on our “Nine Improvements” list.  We encourage you to support this amendment.

Eliminate Spin-Off Language – SA3865 sponsored by Gregg/Johanns eliminates the “Section 716” text that would require all banks from spinning off (or putting into a non-commercial bank affiliate) their swaps business.  This fully addresses our #3 on our “Nine Improvements Needed” list.  We encourage you to support this amendment.

Eliminate “Substantially Higher” Capital Requirements Language – SA3905 fully addresses the capital requirements issue (see #4 on our “Nine Improvements” list) and allows banking regulators to set capital requirements where they see fit to do so.  We encourage you to support this amendment.

Edits to Major Swap Participant Definition – A “To be offered” amendment from Senator Chambliss will change the “Major Swap Participant” definition to make it more clear that only those with large speculative positions – or those that pose a threat to the financial system – should be deemed major swap participants.  This is #6 on our “Nine Improvements” list.  We encourage you to support this amendment.

Eliminate Forced Exchange/Electronic Trading – SA3907 eliminates the mandatory requirement for any cleared swaps to also be traded on a board of trade or swap execution facility.  Although not on our current “Nine Improvements” list, we support this change.  We encourage you to support this amendment.

Edits to Swap Dealer Definition – A “To be offered” amendment from Senator Chambliss would change the “Swap Dealer” definition so that “Main Street” firms that offer swaps are not regulated as Swap Dealers.  For example, as currently written, a community bank that offers a swap to help a small business who is worried about rising interest rates would be regulated the same as a major Wall Street dealer.  We encourage you to support this amendment.

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