Last month I wrote about three pieces of legislation, one House bill and two Senate bills, crafted to repeal the Dodd-Frank Act (DFA). I went into an analysis of why the passage of these bills really weren’t that likely. Well, this time around it seems that House Republicans are trying a different tactic – delay. Bill HR 1573, sponsored by House Agriculture Committee Chairman Frank Lucas, R-OK, co-sponsored by House Financial Services Chairman Spencer Bachus, R-AL, targets to delay much of DFA’s Title VII, the highly contested derivatives section, until late 2012.
The truth of the matter is that this bill has just as much probability of passing into law as the bills calling for repeal – that probability being zero – due to many of the same reasons cited in my previous article. The broader reality is that Dodd-Frank has become a partisan issue, with the GOP defending HR 1573 as a necessary sanity check to prevent the implementation of hastily thought out rules, while the Democrats cite a delay bill as a Republican ploy to wait for a more favorable repeal environment, namely a Republican held Senate or Obama’s defeat in 2012.
The CFTC hasn’t been silent on this topic either. Chairman Gary Gensler stated that CFTC already possesses the authority to extend dates if necessary, so a law is not required. The CFTC already said it won’t get all the rules engaged by July 16, 2011, of course referring back to its lack of funding as the reason. In a surprising move last month, the agency extended the comment periods on all of their proposed rules, including previously closed comment periods. Essentially, all rule comment periods that were closed as of May 4, 2011 were extended to June 3, 2011. The CFTC also sought public comment on the order in which the agency should finalize the rules.
Trusting the CFTC’s stance that they already possess the power to extend and delay components of Title VII, why would anyone feel it necessary to draft delay legislation? The most compelling Republican argument from HR 1573 supporters has been that the proposed bill is not just about delaying the engagement of the regulator’s rules, but also about delaying some of DFA’s automatic or self-executing rules. These rules are embedded in the DFA and don’t depend on any regulatory body rulemaking, and there are plenty of them. These rules repeal sections of the Commodity Exchange Act and the Commodity Futures Modernization Act of 2000, which creates a kind of legal limbo for certain OTC contracts, and introduces a slew of documentation and registration requirements, expecting all entities to be in compliance within the sixty days after June 16th. All this in an environment where the infrastructure hasn’t fully developed past what many view as a straw man phase.
The CFTC is well aware of the potential issues surrounding these triggered rules, and CFTC Commissioner, Scott O'Malia stated in a Reuter’s interview this week, that they are “working on a document and a proposal right now that creates certain safe harbors for self executing rules, to delay them until the new rules are in place.”
Make sure you are all buckled in tight, because this is going to be one helluva ride.