7:23 p.m. | Updated Senator Maria Cantwell, Democrat of Washington, is planning to announce her support of the sweeping overhaul of the nation’s financial regulatory system.
Ms. Cantwell had voted against the Senate version of the bill, and her decision to support the final measure will make it easier for Democrats to surmount a Republican filibuster.
The majority leader, Harry Reid of Nevada, postponed a vote on the final bill until after the Fourth of July recess because he said he did not have the 60 votes needed to cut off a Republican filibuster and end debate on the measure.
With the death of Senator Robert C. Byrd of West Virginia earlier this week, there are 58 senators in the Democratic caucus, including two independents. Senator Russ Feingold, Democrat of Wisconsin, had already said he would oppose the financial regulatory bill.
With Ms. Cantwell’s support, and a replacement for Mr. Byrd expected shortly, Mr. Reid will need the backing of just two Republicans to advance the legislation. Four Republicans voted for the Senate version of the bill, but one of them, Senator Scott Brown of Massachusetts, has said he will spend the recess studying the final language and has not indicated how he will vote.
Ms. Cantwell had opposed the Senate bill in large part out of concern that it left a major loophole in the effort to impose a new regulatory framework for derivatives, the complex financial instruments that were at the heart of the 2008 crisis.
Aides to Ms. Cantwell said that a crucial factor in her decision to support the final bill was a letter received on Thursday from Gary Gensler, the chairman of the Commodity Futures Trading Commission, which will have a large role in regulating derivatives trades.
In the letter, Mr. Gensler emphasized his view that most derivatives trades will have to be cleared through an exchange.
“The legislation mandates the clearing and transparent trading of standardized over-the-counter derivatives and comprehensive regulation of derivatives dealers,” Mr. Gensler wrote. “The bill explicitly requires that swap dealers, major swap participants and financial entities use a clearinghouse for standardized or “clearable” derivatives transactions.”
In the letter, Mr. Gensler also praised the legislation as “strong, comprehensive and historic.”
Here’s the full text:
Dear Senator Cantwell:
In response to your request, I am writing to provide my views on the clearing requirement in Title VII of
H.R. 4173, the “Wall Street Transparency and Accountability Act of 2010.” The legislation reported by the
Conference Committee is strong, comprehensive and historic. The legislation mandates the clearing and
transparent trading of standardized over-the-counter derivatives and comprehensive regulation of derivatives
dealers.
The bill explicitly requires that swap dealers, major swap participants and financial entities use a
clearinghouse for standardized or “clearable” derivatives transactions. Under the bill the CFTC and SEC are
required to promulgate rules and regulations to provide for the mandatory clearing of such swaps. Commercial
end users are exempt from this clearing requirement, as are customized swaps, and the Commission is directed
to consider whether to exempt small banks, savings associations, farm credit institutions and credit unions from
the clearing requirement.
I believe that a significant portion of the market will be subject to this mandatory clearing requirement.
Although estimates vary, the CEO of one of the largest financial institutions and swap dealers in the U.S. has
publicly testified that as much as 75 to 80 percent of the over-the-counter derivatives marketplace is standard
enough to be centrally cleared. While we do not know for certain what portion of the standard market is
between and amongst financial entities, data from the Bank for International Settlements indicate that more than
85 percent of the entire over-the-counter derivatives marketplace is between or amongst reporting swap dealers
and other financial entities.
These clearing requirements, together with the trading requirement and comprehensive dealer
regulation, will greatly reduce risk and enhance transparency in these markets.
Thank you for all of your contributions toward this landmark legislation.
Sincerely,
Gary Gensler
Chairman