By Zachary Warmbrodt 

 

A looming July 12 deadline has spurred Democrats in Congress to put last-minute pressure on regulators writing rules for international derivatives deals.

And they are pushing in different directions.

 

Some want derivatives regulator the Commodity Futures Trading Commission to stay the course and issue tougher rules while others are asking officials to slow down, take some time and coordinate with officials at home and abroad.

 

Nearly three years after the passage of the 2010 Dodd-Frank law, the letters and a recent series of House votes show that how to regulate derivatives markets remains an area of disagreement within the party — a divide that is sending mixed signals to officials implementing the new rules.

 

“There are people who see the word derivatives and that’s an automatic ‘no’ to it,” said Rep. Gwen Moore (D-Wis.), one of several Democrats supporting recent proposed changes to how the derivatives section of the law is rolled out. “That was something to overcome, to be able to explore the validity of this bill. I thought it was perfectly reasonable to say these rules ought to be harmonized.”

 

The Hill is weighing in as regulators work to resolve internal conflicts that have spilled into the press and congressional hearings.

 

The CFTC has the most pressing issues. CFTC Chairman Gary Gensler, who is expected to step down from the agency this year, is urging his fellow commissioners to finish by July 12 critical guidance for how derivatives deals that cross borders will be regulated. Supporters of the plan argue that it will prevent large banks and other financial institutions from evading U.S. oversight by conducting transactions through foreign affiliates, while pointing out the deals that nearly brought down American International Group were done in London.

 

Gensler is facing pushback from fellow commissioners who want to take more time. The agency is also facing down warnings of regulatory overreach from foreign officials and the industry. Reform advocates support Gensler’s approach.

 

Late Friday, Gensler scheduled a July 12 public vote on the final guidance and a phase-in compliance plan known as an exemptive order, which commissioners received last week. But the meeting notice doesn’t signal that commissioners have reached a deal. In June 2012, the CFTC cancelled a public vote on an earlier draft of the guidance the day of the meeting as commissioners continued to negotiate.

“Just because we have scheduled a meeting doesn’t mean that we are any closer to agreement on the cross-border guidance,” said CFTC Commissioner Scott O’Malia, a Republican. “Any solution we may come up with in the next week will be a hastily-crafted solution that is forced by an arbitrary deadline.”

 

Across town, the Securities and Exchange Commission, a larger agency that will regulate a smaller piece of the derivatives market, has proposed its own cross-border rules that are different than the CFTC.

In the days leading up to the July 4 holiday, at least 49 Democrats in the House and Senate wrote to the Treasury, the CFTC and SEC with ideas on how to best proceed.

 

Six Senators and 35 House members warned that the CFTC and SEC need to take time to coordinate with each other and foreign regulators. Eight Senators said July 3 that the CFTC and SEC needed to close a loophole in their plans, but not delay.

 

The letter-writing campaign follows a series of votes on House derivatives bills that also revealed a difference of opinion among Democrats.

 

On June 12, the House moved a bill that would cause the CFTC and SEC to re-think and coordinate their different cross-border derivatives plans. The House passed the bill with the support of 73 Democrats. The bill isn’t going anywhere for now in the Democrat-controlled Senate.

 

All sides are finding silver linings amid the back-and-forth.

 

Securities Industry and Financial Markets Association President Ken Bentsen said he was “encouraged” by the cross-border vote. Better Markets President Dennis Kelleher called it “remarkable that Wall Street hasn’t won some signifcant rollbacks,” but warned of “financial reform battle fatigue.”

 

“It’s kind of been a draw in Congress so far,” said Americans for Financial Reform policy director Marcus Stanley.

 

Lawmakers are getting personal time with the regulators, too. Sen. Elizabeth Warren (D-Mass.), who has accused CFTC commissioners of trying to “run out the clock” on Gensler’s term, has spoken in recent weeks with CFTC Commissioner Mark Wetjen, the critical vote Gensler needs to finish the cross-border rules by July 12.

 

But it’s unclear if the pushing and prodding has made a big difference at CFTC headquarters.

 

Gensler is driving commissioners toward the deadline, while Wetjen said July 2 that he still wasn’t sure “we can accomplish that before July 12.” Negotiations will happen in earnest this week ahead of the scheduled vote, which could be delayed. Wetjen has suggested that the commission take more public input on the cross-border plan, an idea that Gensler has said would delay reforms.

 

Gensler will also need the vote of CFTC Commissioner Bart Chilton, a Democrat who wants to finish the rules without delay but stagger the compliance dates. “I’m pleased we have been making progress and I look forward to a resolution to our interpretive guidance and the phased-in implementation,” Chilton said.

 

Democrats will have more opportunities to disagree in the coming weeks about how the CFTC should be run. Lawmakers still have to vote on its budget, and in the House there’s an amendment that revives the forced SEC coordination on cross-border rules.

 

Democrats who have supported bills that would change portions of Dodd-Frank’s derivatives reforms — despite the lobbying for no votes by the Treasury Department and senior House Democrats — have said they are only looking to make small changes and have balked at the idea they are undermining the law.

 

Moore, who supported a bill in June that would change laws cross-border provisions, said there is an “awful lot of hyperbole, quite frankly, devoted to this.”

 

 

To view this article online, please click here.