Legislative Activity

Financial Services Committee to Consider Legislative Proposals as Banking Committee Prepares for Delayed Markup

The Senate Banking Committee has rescheduled its markup of legislation to reform aspects of the financial services industry for May 21. While exactly what will be contained in the final legislation is unclear – and subject to change – it is expected that the package will be more than 200 pages, including eight titles addressing: (1) community banks; (2) mid-size banks; (3) credit unions; (4) non-bank systemically important financial institutions (SIFIs); (5) insurance regulation; (6) the Federal Reserve; (7) capital markets; and (8) government sponsored enterprises (GSEs).

Importantly, as of the end of last week, Senate Banking Committee Chairman Richard Shelby (R-AL) had not yet shared the legislative language with his Democratic counterparts. Committee Democrats, who “are not at all happy” about the process, sent a letter to Chairman Shelby last week, expressing their “concern and disappointment” with his plan to conduct a markup “without giving all committee Democrats time to analyze and review” the legislation.

On the House side, the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises will hold its second hearing to consider proposals to enhance capital formation and reduce regulatory burdens. Specifically, the Subcommittee plans to: (1) identify legal, regulatory, and market impediments to capital formation, particularly for small and medium-capitalized companies; (2) consider targeted proposals to establish venture exchanges to improve secondary market liquidity for small and emerging growth companies; (3) update the Securities and Exchange Commission’s (SEC) research safe harbor provisions for open-ended investment funds; and (4) codify a retrospective review of significant SEC rules consistent with President Obama’s Executive Orders and the Economic Growth and Regulatory Paperwork Reduction Act.

Fannie and Freddie Housing Goals Due Soon, HAMP and HARP Extended

On Friday, May 8, Federal Housing Finance Agency (FHFA) Director Mel Watt announced that the final housing goals for GSEs Fannie Mae and Freddie Mac are expected to be published “in the coming months.” In August 2014, FHFA proposed new goals  that would establish what percentage of business Fannie and Freddie would direct to finance loans for home purchases and rental developments in lower-income neighborhoods.  The last time such goals were set was in 2012.

Separately, Director Watt announced on Friday that FHFA is extending the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP) through 2016. These programs provide borrowers with loans backed by the GSEs another year to qualify for relief or refinance their loan if they owe more than their house is worth. According to Director Watt, this is the last time the agency will extend the programs.

This Week’s Hearings:

• Wednesday, May 13: The House Financial Services Subcommittee on Oversight and Investigations will hold a hearing titled “The Dodd-Frank Act and Regulatory Overreach.”
• Wednesday, May 13: The House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises will hold a hearing titled “Legislative Proposals to Enhance Capital Formation and Reduce Regulatory Burdens, Part II.”
• Thursday, May 14: The House Financial Services Committee will hold a hearing titled “Protecting Consumers: Financial Data Security in the Age of Computer Hackers.”
• Thursday, May 14: The House Financial Services Subcommittee on Housing and Insurance will hold a hearing titled “TILA-RESP Integrated Disclosure: Examining the Costs and Benefits of Changes to the Real Estate Settlement Process.”

Regulatory Activity

CFTC to Hold GMAC Meeting, Aims to Harmonize Cross-Border Derivatives Rules by Summer

On Thursday, May 14, the Commodity Futures Trading Commission (CFTC) will hold a meeting of its Global Markets Advisory Committee (GMAC), which is sponsored by Commissioner Mark Wetjen. The meeting will consist of two panels, which will discuss: (1) clearinghouse capital contributions, as well as clearinghouse stress testing; and (2) the CFTC’s proposal regarding cross-border application of its margin requirements for uncleared swaps.

Additionally, last week, CFTC Chairman Timothy Massad participated in a hearing before the European Parliament in Brussels. While U.S. and EU regulators have yet to come to an agreement on how to harmonize derivatives rules regulating clearinghouses, Chairman Massad noted that “discussions are constructive and progressing” and “mutually satisfactory.” As such, Chairman Massad and European Commissioner Jonathan Hill indicated that they hope to finalize an agreement on cross-border regulations by summer.

SEC to Hold Meeting of Equity Market Structure Committee, Backs Tick-Size Pilot Program

On Wednesday, May 13, the SEC will hold the first meeting of its Equity Market Structure Advisory Committee, which was established in February 2015 to provide a formal mechanism through which the Commission can receive advice and recommendations on equity market structure issues. The meeting will focus on Rule 611 of SEC Regulation NMS (i.e., the “Order Protection Rule” or “Trade-through Rule”). Rule 611 requires trading centers to have policies and procedures designed to prevent “trade throughs” (i.e., trades at prices that are inferior to displayed and immediately accessible quotations at other trading centers). As Chair Mary Jo White has made clear, “[e]nhancing our equity market structure remains a top priority…As we continue to make progress in this important area, the committee’s experience and diverse viewpoints will provide valuable insight as we work together to further strengthen our overall market structure.”

Relatedly, last Wednesday, May 6, the SEC approved a proposal by the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) for a two-year pilot program that would widen the minimum quoting and trading increments – or tick sizes – for stocks of some smaller companies ($3 billion or less in market capitalization) from increments of 1 cent to 5 cents.  The SEC plans to use the pilot program to assess whether wider tick sizes enhance the market quality of these stocks for the benefit of issuers and investors.