After a lull in financial markets reform activity, Senator Dodd’s amended draft was announced to much fanfare on March 15. Unfortunately, after attempts to come out with a bi-partisan bill, Dodd decided to go out without full support from ranking Senate Banking committee members. Interestingly, the OTC derivative reform component is still being left to Senators Judd Gregg R-NH and Senator Jack Reed D-RI to hammer out as before. Senator Reed has been more outspoken on his views for having as much trade as possible cleared on exchanges and for closing loopholes for end-user exemptions, so, in my mind, end-users shouldn’t sit too content until the final bill is passed.
One interesting change that did come in Dodd’s second draft was the wording for the definition of a Major Swap Participant (MSP). The previous definition focused on defining an active derivative participant that wasn’t a Swap Dealer as someone who carried large net current or future potential credit exposures that could cause significant loss in the event of a default. The new definition now excludes derivatives that are used for hedging and, or reducing commercial risk. The definition now almost exactly mirrors the House bill definition passed in December of last year, and it is a more friendly definition especially to active issuers of debt or investments which could technically have been labeled MSP’s under the original definition.
The Gregg/Reed amendment is yet to be released and, supposedly, Senator Lincoln will have the Senate Agriculture Committee bill next week, so stay tuned to www.savemyswaps.com