Christopher Dodd and Barney Frank, both retired from congress (not the fun kind), actually put together a good regulatory bill after the financial debacle of 2008. Based upon the way that things work here in the US however, as soon as the bill was enacted, the "financial services companies" that the bill was crafted to regulate began to dismantle it. Those efforts continue today as evidenced by the following excerpts from a new "Jobs Bill" as passed by the House last Fall.
I will explain the language and show what is really going on and the reasons why items, that appear to be pretty harmless, are actually extremely important to the Street and their "captive issuers" and the corporate form that they must take to continue to issue arbitrage securities backed by mortgages and their derivatives.
The following is copied from the US House Financial Services Committee web page describing H.R. 5405. It is a fine example of the language employed by our representatives to try to fool us into believing that they are actually concerned with our well being:
H.R. 5405, the Promoting Job Creation and Reducing Small Business Burdens Act, introduced by Rep. Mike Fitzpatrick (R-PA), would enhance the ability of small and emerging growth companies to access much-needed capital through public and private markets and reduce the regulatory, red-tape burden these companies face to help them create jobs. Also included in H.R. 5405 are previously approved bipartisan bills, which can be found here.
“With millions of our fellow Americans unemployed and underemployed, job number one for our committee and House Republicans continues to be job creation and economic growth. While it is sometimes difficult to find common ground in divided government, these are common sense, bipartisan bills that will help grow our economy and put Americans back to work. Both bills fix problems with Washington regulations, so small businesses and companies throughout the nation will find it easier to create jobs that struggling American families desperately need,” said Hensarling.
“Several provisions in these bills have previously passed the House with overwhelming bipartisan support. Yet Harry Reid has refused to allow them to come up for a vote in the Senate. We’re passing them again to remind Harry Reid that House Republicans have produced positive solutions to grow the economy, and it’s time for the Senate to join us,” Hensarling added.
Here are some parts of the bill as drafted by the House:
Promoting Job Creation and Reducing Small Business Burdens Act - Title I: Business Risk Mitigation and Price Stabilization Act - (Sec. 101) Amends the Commodity Exchange Act (CEA) to exempt, from the rules of prudential regulators for swap dealers and major swap participants with respect to initial and variation margin requirements for swaps not cleared by a registered derivatives clearing organization, those swaps in which one of the counterparties: (1) is eligible for an exception from clearing requirements because it is not a financial entity, uses swaps to hedge or mitigate commercial risk, and notifies the Commodity Futures Trading Commission (CFTC) how it meets financial obligations associated with entering into non-cleared swaps; (2) is eligible for a public interest exemption from swap clearing requirements for certain cooperative entities; or (3) satisfies specified criteria governing treatment of affiliates in connection with clearing requirements.
Amends the Securities Exchange Act of 1934, (SEA 1934) regarding registration and regulation of security-based swap dealers and major security-based swap participants, to exempt from initial and variation margin requirements for swaps not cleared by a registered derivatives clearing organization a security-based swap in which one of the counterparties: (1) qualifies for a specified exception from clearing requirements, or (2) satisfies certain criteria governing the treatment of affiliates.
Title II: Treatment of Affiliate Transactions - (Sec. 201) Amends the CEA and SEA 1934 to revise the treatment of affiliate transactions that may be exempt from clearing requirements to authorize such an exemption only if the affiliate enters into the swap to hedge or mitigate the commercial risk of the person that is not a financial entity (as under current law), provided that an appropriate credit support measure or other mechanism is used if the transfer of commercial risk is addressed by entering into a swap with either: (1) a swap dealer or major swap participant, or (2) a security-based swap with a security- based swap dealer or major security-based swap participant.
Title III: Holding Company Registration Threshold Equalization Act - (Sec. 301) Amends SEA 1934 to require an issuer that is a savings and loan holding company to register with the Securities and Exchange Commission (SEC) if: (1) its assets exceed $10 million, and (2) it has a class of equity security held of record by 2,000 or more persons.
Requires termination of such registration after a savings and loan holding company certifies that its holders of record of that class of security have been reduced to fewer than 1,200 persons.
Suspends automatically the duty of a savings and loan holding company to file supplementary and periodic information if the securities of each class to which the registration statement relates (other than any class of asset-backed securities) are held of record by fewer than 1,200 persons.
Title IV: Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act - (Sec. 401) Amends SEA 1934 to exempt from its registration requirements certain merger and acquisition (M&A) brokers, including any person associated with a broker.
Denies such registration exemption, however, to brokers who: (1) receive, hold, transmit, or have custody of any funds or securities to be exchanged by parties to a transfer of ownership of an eligible privately held company; or (2) engage on behalf of an issuer in a public offering of securities that are either subject to mandatory registration, or with respect to which the issuer must file periodic information, documents, and reports.
Title VIII: Restoring Proven Financing for American Employers Act - (Sec. 801) Amends the Bank Holding Company Act of 1956 regarding certain prohibitions on proprietary trading by banking entities and certain relationships with hedge funds and private equity funds (Volcker Rule).
Prohibits the Volcker Rule from being construed to require divestiture, before July 21, 2017, of any debt securities of collateralized loan obligations issued before January 31, 2014.
States that a banking entity shall not be considered to have an ownership interest in a collateralized loan obligation because it either acquires, has acquired, or retains a debt security in such obligation if the debt security has no indicia of ownership other than the right of the banking entity to participate in the removal for cause, or in the selection of a replacement after removal for cause or resignation, of an investment manager or investment adviser of the collateralized loan obligation.
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