June 14, 2018

House Financial Services Committee “Markup Report”

Summary

  • All the bills considered were favorably reported out of Committee. 

Legislation Considered

  • H.R. 5953, the “Building Up Independent Lives and Dreams Act”
  • H.R. 6069, the “Fight Illicit Networks and Detect Trafficking Act”
  • H.R. 5749, the “Options Markets Stability Act”
  • H.R. 6035, the “Streamlining Communications for Investors Act”

Markup

H.R. 5953, the “Building Up Independent Lives and Dreams Act”

This bill would provide regulatory relief to charitable organizations that provide housing assistance. The bill drew broad bipartisan support.

The measure was favorably reported by a vote of 53-0.

H.R. 6069, the “Fight Illicit Networks and Detect Trafficking Act”

This bill would require the Comptroller to study how virtual currencies are used to facilitate illicit finance, including human and drug trafficking. The bill was amended by Rep. Tom Emmer (R-Minn.).

The measure was favorably reported by a vote of 53-0.

H.R. 5749, the “Options Markets Stability Act”

Rep. Randy Hultgren (R-Ill.) introduced this bill, which would require federal banking regulators to adjust their capital requirements for firms with counterparty credit risk in derivatives. The bill would require new rules for capital requirements that provide for delta weighting and the netting of correlated positions. Hultgren argued  that the current restraints on bank capital limit market makers ability to access options markets through central clearinghouses and said that a new calculation of counterparty exposure will do a better job of ensuring capital requirements are based on actual risk and not notional levels of derivatives.

Rep. Bill Foster (D-Ill.) introduced an Amendment in the Nature of a substitute that required the banking regulators to consider 1) the availability of liquidity provided by market makers during high volatility periods 2) the bid-ask spread 3) the preference for clearing through central counterparties 4) the benefits of central clearing 5) the soundness and market share of banking institutions clearing derivatives or options on behalf of a client 6) the value of delta weighting and netting 7) the inherent risk of options positions 8) barriers of entry to depository institutions to centrally clear derivatives and 9) the impact of any changes on the broader capital regime, when developing the new rule. The Amendment also required a report by the banking regulators to the House and Senate on the impact of any promulgated rule.

Reps. Bill Huizenga (R-Mich.) Chairman Hensarling (R-Texas), Ranking Member Waters (D-Calif.), French Hill (R-Ark.), David Scott (D-Ga.) and Stephen Lynch (D-Mass.) all expressed support for the bill as amended.

The measure was favorably reported by a vote of 54-0.

H.R. 6035, the “Streamlining Communications for Investors Act”

Rep. Ted Budd (R-N.C.) introduced this bill, which would expand the SEC’s Rule 163 safe harbor for issuers communicating with investors ahead of an offering to include underwriters acting on behalf of an issuer. Budd and other Republicans on the committee defended the measure as “uncontroversial” and a “common sense” update to securities laws that would improve investor/issuer communication and better allow well-known seasoned issuers (“WKSIs”) to test markets for investor interest in new securities. Hensarling, Huizenga, and Rep. Barry Loudermilk (R-Ga.) all expressed support for the bill.

Waters opposed the bill, which she described as a “handout” to corporations that would create an uneven playing field for investors. Waters said that WKSIs still deserve scrutiny about their securities and noted opposition from the Credit Roundtable, who argued that the bill would put institutional investors in the fixed-income markets at a disadvantage, because they would have to evaluate securities within minutes, and without having access to necessary securities disclosures. Lynch said the measure would encourage “bait and switch” offerings from WKSIs who have not filed automatic shelf registrations, or who offer securities not covered in their shelf registration. Lynch argued the bill would allow dealers and underwriters to mislead investors.

The measure was favorably reported by a vote of 31-23.

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