Capital Hill news website TheHill.com is reporting that Senate Democratic Whip Dick Durbin (Ill.) said earlier today that the August recess is at risk because of Republican obstruction of Wall Street reform and executive branch nominees. To read more about this story, click here.
In addition to facing continuing opposition from the GOP, the financial reform bill could also face opposition from within.
Sen. Ben Nelson (D-Neb.), a centrist whose vote fellow Democrats might need in order to secure 60 or more votes to pass the bill, said today that the bill is not yet at a place where he could support it on final passage.
Notably, Senator Nelson joined with Republicans in three procedural votes last week in an effort to block beginning debate on the reform bill. He was the only Democrat to do so. Although Sen. Nelson did concede that the amendments approved earlier today are bringing him closer to supporting the legislation, he also said that he still has “a lot” of concerns with the bill, including how the legislation would affect small and community banks.
Earlier today the Senate voted to approve an amendment to the portion of the financial regulatory reform bill dealing with “too big to fail” financial institutions. The amendment is the result of an agreement reached earlier today between Senator Chris Dodd (D-Conn.), the chairman of the Senate Banking Committee, and Senator Richard Shelby (R-Ala.), the ranking member of that committee.
Today’s vote was the first formal movement on the reform bill since Republican senators allowed debate to begin late last week on the legislation, and has cleared the way for voting to proceed on the hundreds of other amendments being proposed by senators from both sides of the aisle.
Amendments approved:
Earlier today the Senate voted to approve an amendment to the portion of the financial regulatory reform bill dealing with “too big to fail” financial institutions. The amendment is the result of an agreement reached earlier today between Senator Chris Dodd (D-Conn.), the chairman of the Senate Banking Committee, and Senator Richard Shelby (R-Ala.), the ranking member of that committee.
Although today’s bipartisan deal represents significant progress, the bill still does not have the full support of Senator Shelby. Shortly after he reached agreement with Senator Dodd on the “too big to fail” provisions, Senator Shelby released the following statement:
I thank Chairman Dodd for including my changes to the legislation that will correct these critical shortcomings. While this progress is encouraging, the overall legislation still has a long way to go to gain my support. My Republican colleagues and I will continue to offer constructive proposals to restrain the drastic government overreach in this bill and promote the competitiveness of our financial system during this time of economic difficulty. It is my hope that this legislation can be further improved to achieve these important goals as well.
Earlier today the Senate voted to approve an amendment to the portion of the financial regulatory reform bill dealing with “too big to fail” financial institutions. The amendment is the result of an agreement reached earlier today between Senator Chris Dodd (D-Conn.), the chairman of the Senate Banking Committee, and Senator Richard Shelby (R-Ala.), the ranking member of that committee.
The amendment excludes the $50 billion liquidation fund previously proposed in the bill, opting instead to cover the costs of liquidations from asset sales and, in case of shortfalls, from fees assessed against other large firms.
The Senate also approved an amendment offered by Senator Barbara Boxer (D-CA) that would prohibit the use of taxpayer funds to bail out financial institutions.
Today’s vote was the first formal movement on the reform bill since Republican senators allowed debate to begin late last week on the legislation, and has cleared the way for voting to proceed on the hundreds of other amendments being proposed by senators from both sides of the aisle.
Last week, on April 28, 2010, SEC Chairman Mary Schapiro testified before the Senate’s Subcommittee on Financial Services and General Government in support of the President’s FY 2011 budget request of $1.258 billion for the Securities and Exchange Commission.
During her testimony, Chairman Schapiro discussed the SEC’s progress on various initiatives undertaken during the past year as well as the agency’s continuing work to further improve investor protections.
It has been reported that a bankrupt hedge fund is in talks with Goldman, Sachs & Co., to recoup losses it sustained in the “Timberwolf” securities deal.
invested approximately of $100 million in a $1 billion security Goldman packaged and sold as “Timberwolf” in Q1 2007. If you have been following the Goldman Sachs Senate Subcommittee investigations this week you would have heard that this deal was criticized in in-house e-mails. Namely, “Boy, that Timberwolf was one [$%&!] deal.”
The hedge fund is said to have lost approximately $56 million on the Timberwolf security. Goldman has not yet commented on its talks with the hedge fund.
As reported earlier on this blog, the Securities and Exchange Commission filed a lawsuit April 16 against Goldman alleging that the firm secretly created investments designed to fail while a hedge fund manager, John Paulson, who helped package the deal, was betting against them.
As compliance professionals, this should stand as an acute reminder to train employees on the importance of using discretion in drafting and sending out e-mails and other electronic communications (among a whole host of other compliance related issues!). While often tagged as a best practice, firms should implement an electronic communications (i.e., emails and instant messages) monitoring and review system. People tend to forget that once an electronic communication is put out in cyberspace it can and may be used against (or for) you. While training and monitoring can never stop someone from committing a fraud or potential fraud (and this is not to imply that Goldman is guilty in anyway — I’ll leave that decision to the courts!), it can certainly help catch it before it grows into something much bigger.
As posted last night on Compliance Avenue, Senator Christopher Dodd unveiled a financial regulatory reform bill Monday. This 1336 page bill proposed what some have called the “most sweeping overhaul of financial regulation since the depression,” and included a provision that would require advisers to private funds with more than $100 million in AUM to register with the SEC as investment advisers. Two other areas of the bill are of particular import to hedge funds and hedge fund managers: (1) the regulation of over-the-counter derivatives markets; and (2) the inclusion of the “Volcker Rule” (For a full report on the bill see the Wall Street Journal.)
1. Regulation of Over-the-Counter Derivatives Markets.
The current bill represents little change from the November draft. But, Senators Jack Reed and Judd Gregg are working on a substitute amendment to this title that may be offered at full committee. As currently written, the over-the-counter derivatives market will be regulated by the SEC and the CFTC. The bill also requires central clearing and exchange trading for derivatives that can be cleared. The SEC and the CFTC must pre-approve contracts before clearing houses can clear them but, both regulators and clearing houses will have a role in determining which contracts should be cleared.
The bill has also added safeguards for un-cleared trades. Any un-cleared trades will require margin to offset the greater risk such trades pose. In addition, swap dealers and major swap participants will be subject to capital requirements.
Finally, the bill aims to increase market transparency by requiring data collection and publication through clearing houses or swap repositories.
2. Volcker Rule.
The bill would implement a form of the “Volcker Rule,” named after former Fed Chairman Paul Volcker. Specifically, the bill would require regulators to implement regulations to prohibit banks, their affiliates and bank holding companies, from proprietary trading. The regulations would also prohibit such institutions from investing in, or sponsoring, hedge funds and private equity funds. Notably, before any regulations are written, the bill calls for a study and recommendations to made by the Financial Stability Oversight Council.
The New York Times reports that Sen. Dodd hopes to begin holding votes in committee starting next week, and to have the legislation on the Senate floor by late April.
It is expected that Senator Chris Dodd will release his Financial Regulatory Reform bill on Monday. Work on a bi-partisan package fell through, but it is expected that Dodd’s proposal will include several agreements made with Republican Senator Bob Corker. The Investment Adviser Association is concerned about certain expected provisions of the bill:
The IAA is especially concerned about provisions in the bill that may address the “harmonization” of broker-dealer and investment adviser regulation and issues relating to whether fiduciary obligations should be extended to others who provide investment advice. Although not yet certain, we expect that the Dodd legislation is likely to include provisions that require the SEC to conduct a study to (1) determine appropriate obligations of broker-dealers and investment advisers, particularly as they relate to personalized investment advice about securities to retail customers; to (2) provide for a report by the Commission to Congress in 18 months; and to (3) require a rulemaking by the SEC to address regulatory gaps and overlap in regulation identified by the study.
Like all of the financial reform bill’s that we have seen over the past 12 months, Dodd’s bill is most certainly going to include the registration of hedge fund managers.
According to the Associated Press, lawmakers in Connecticut, may be gearing up to pass hedge fund legislation in their state. Last year, the state legislature failed to pass a bill which would have required hedge funds and private equity firms to disclose certain conflicts of interest. Some state lawmakers are looking to use that bill as a starting point for new hedge fund legislation.
Hedge fund regulation on the federal seems to be stuck in the Senate right now. Although the house has already passed their financial reform bill (which includes hedge fund registration), the Senate version seems to be stuck. It looks like some Connecticut legislators have gotten fed up with the slow progress and may take their own steps towards regulation for hedge funds in the state.