DATE: MAY 5, 2009

TO: NCOIL LEGISLATORS

FROM: SUSAN NOLAN

NCOIL EXECUTIVE DIRECTOR

RE: BILL INTRODUCED TO ALLOW FEDERAL CDS REGULATION

Provided for your review, is the following information:

  • Levin-Collins Bill Would Allow Immediate Regulation of Swap Agreements, including Credit Default Swaps (5/4 Sen. Levin Press Release)
  • Authorizing the Regulation of Swaps Act (Legislation, as Introduced)
  • U.S. Sens. Levin, Collins Seek to Allow Regulation of Swaps (5/4 Dow Jones)

U.S. Senators Carl Levin (D-MI) and Susan Collins (R-ME) yesterday introduced a bill—the Authorizing the Regulation of Swaps Act—to authorize the federal government to regulate credit default and other swaps. The legislation would repeal any existing statutes prohibiting the federal government from regulating such products. While the bill does not outline a regulatory process, its sponsors call it an “interim measure intended to clear the way for more specific swaps requirements,” which may be included in comprehensive regulatory reform legislation expected later this year.

BILL STATUS

As of this morning, the legislation has not been numbered or assigned to a Committee. It is likely that the bill will be sent to the U.S. Senate Committees on Agriculture, Nutrition, and Forestry and on Banking, Housing, and Urban Development as the Committees with authority over derivative markets and financial services, respectively. Neither Senator is a Member of either Committee.

AUTHORIZING THE REGULATION OF SWAPS ACT

Among other things, the proposed legislation would:

  • Repeal provisions of existing law—including the Gramm-Leach-Bliley Act, the Commodity Futures Modernization Act, and the Securities Exchange Act, among others— that prevent federal government regulation of swaps markets.
  • Authorize each federal financial regulator—including the CFTC, FDIC, OCC, and SEC, among others—to exercise oversight over any swap agreement subject to their respective jurisdictions.
  • Clarify that the bill would NOT require swaps to be executed through a clearing house or exchange.
  • Require—to ensure consistency—that federal financial regulators coordinate before taking action to regulate swaps.

OTHER SPONSORED CDS BILL

Sen. Collins has also introduced S. 664, the Financial System Stabilization and Reform Act of 2009, to create a systemic risk monitor for the U.S. financial system. The bill—which would create a Financial Stability Council of federal regulators to address systemic risk, and abolish the OTS, among other things—contains CDS provisions that would grant the CFTC and SEC authority over CDS clearinghouses, capitalization, reporting, and recordkeeping requirements and would permit the SEC to prohibit fraudulent, deceptive, or manipulative acts.

Feel free to contact Mike Humphreys at or at 202-220-3014 should you have any questions.