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[House Report 112-471]
[From the U.S. Government Printing Office]


112th Congress                                            Rept. 112-471
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

======================================================================



 
 SWAP DATA REPOSITORY AND CLEARINGHOUSE INDEMNIFICATION CORRECTION ACT 
                                OF 2012

                                _______
                                

                  May 9, 2012.--Ordered to be printed

                                _______
                                

  Mr. Bachus, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 4235]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4235) to amend the Securities Exchange Act of 
1934 and the Commodity Exchange Act to repeal the 
indemnification requirements for regulatory authorities to 
obtain access to swap data required to be provided by swaps 
entities under such Acts, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Swap Data Repository and Clearinghouse 
Indemnification Correction Act of 2012''.

SEC. 2. REPEAL OF INDEMNIFICATION REQUIREMENTS.

  (a) Derivatives Clearing Organizations.--Section 5b(k)(5) of the 
Commodity Exchange Act (7 U.S.C. 7a-1(k)(5)) is amended to read as 
follows:
          ``(5) Confidentiality agreement.--Before the Commission may 
        share information with any entity described in paragraph (4), 
        the Commission shall receive a written agreement from each 
        entity stating that the entity shall abide by the 
        confidentiality requirements described in section 8 relating to 
        the information on swap transactions that is provided.''.
  (b) Swap Data Repositories.--Section 21(d) of the Commodity Exchange 
Act (7 U.S.C. 24a(d)) is amended to read as follows:
  ``(d) Confidentiality Agreement.--Before the swap data repository may 
share information with any entity described in subsection (c)(7), the 
swap data repository shall receive a written agreement from each entity 
stating that the entity shall abide by the confidentiality requirements 
described in section 8 relating to the information on swap transactions 
that is provided.''.
  (c) Security-Based Swap Data Repositories.--Section 13(n)(5)(H) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78m(n)(5)(H)) is amended 
to read as follows:
                  ``(H) Confidentiality agreement.--Before the 
                security-based swap data repository may share 
                information with any entity described in subparagraph 
                (G), the security-based swap data repository shall 
                receive a written agreement from each entity stating 
                that the entity shall abide by the confidentiality 
                requirements described in section 24 relating to the 
                information on security-based swap transactions that is 
                provided.''.
  (d) Effective Date.--The amendments made by this Act shall take 
effect as if enacted as part of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Public Law 111-203) on July 21, 2010.

                          Purpose and Summary

    H.R. 4235, the ``Swap Data Repository and Clearinghouse 
Indemnification Correction Act of 2012,'' would repeal the 
indemnification provisions in Sections 725, 728, and 763 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (the 
Dodd-Frank Act) (PL 111-203) to increase market transparency, 
facilitate global regulatory cooperation, and ensure that U.S. 
regulators have access to necessary swaps data from foreign 
data repositories, derivatives clearing organizations, and 
regulators.

                  Background and Need for Legislation

    Sections 728 and 763 of the Dodd-Frank Act require swap 
data repositories and security-based swap data repositories to 
make data available to non-U.S. financial regulators, including 
foreign financial supervisors, foreign central banks, and 
foreign ministries. Before a U.S. data repository can share 
data with a foreign regulator, however, the foreign regulator 
must agree that it will abide by applicable confidentiality 
requirements that it will indemnify the data repository and the 
Securities and Exchange Commission (SEC) or the Commodity 
Futures Trading Commission (CFTC) for litigation expenses that 
may result from the sharing of data with the foreign regulator. 
Section 725 of the Dodd-Frank Act imposes similar requirements 
for data sharing between derivatives clearing organizations and 
foreign regulators, including the requirement that foreign 
regulators indemnify derivatives clearing organizations and 
U.S. regulators for litigation expenses that may result from 
the sharing of data with foreign regulators.
    These indemnification provisions--which were not included 
in the financial reform bill passed by the House of 
Representatives in December 2009--threaten to make data sharing 
arrangements with foreign regulators unworkable. Foreign 
regulators will most likely refuse to indemnify data 
repositories, derivatives clearing organizations, or their U.S. 
regulators for litigation expenses in exchange for access to 
data. As a result, foreign regulators may establish their own 
data repositories and clearing organizations to ensure they 
have access to data they need to perform their supervisory 
duties, which would result in the creation of multiple 
databases, needlessly duplicative data collection efforts, and 
the possibility of inconsistent or incomplete data being 
collected and maintained across multiple jurisdictions. 
Moreover, the indemnification provisions in Sections 725, 728, 
and 763 of the Dodd-Frank Act caused foreign regulators to 
consider adopting similar indemnification requirements, which 
would prevent U.S. regulators from obtaining data from foreign 
data repositories and derivatives clearing organizations.
    Market participants and regulators have expressed concerns 
about these indemnification provisions. For example, in a 
February 8, 2012, statement for the record at a Capital Markets 
and Government Sponsored Enterprises Subcommittee hearing, 
Larry Thompson, Managing Director and General Counsel for the 
Depository Trust & Clearing Corporation, stated that ``[m]any 
regulators worldwide have expressed deep concerns about the 
reach and scope of the indemnity provision and have stated it 
creates an environment for data fragmentation.'' Mr. Thompson 
noted that such provisions will ``(1) impede global regulatory 
cooperation, (2) risk fragmentation of a global data set for 
OTC derivatives, and (3) undermine efforts to increase market 
transparency and mitigate risk in this market.'' Carlos 
Tavares, Vice Chairman of the European Securities and Markets 
Authority, expressed similar concerns in a January 17, 2012, 
letter to SEC Chairman Mary Schapiro, writing that 
``indemnification agreements undermine the key principle of 
trust . . . essential for exchanging information among 
regulators.''
    On February 1, 2012, the CFTC and the SEC staff issued a 
``Joint Report on International Swap Regulation,'' which 
acknowledged these problems with the indemnification provisions 
in Sections 728 and 763 of the Dodd-Frank Act. The Commissions' 
staff reported that the indemnification provisions have 
``caused concern among foreign regulators, some of which have 
expressed unwillingness to register or recognize [a swaps data 
repository] unless able to have direct access to necessary 
information.'' The staff reported that foreign regulators ``are 
considering the imposition of a similar requirement that would 
restrict the CFTC's and SEC's access to information at [data 
repositories] abroad.'' The staff noted that even though the 
CFTC and SEC are working to provide access to foreign 
regulators consistent with the Dodd-Frank Act and to ensure 
that U.S. regulators have access to foreign-based information, 
``Congress may determine that a legislative amendment to the 
indemnification provision is appropriate.''
    To mitigate the potential negative impacts of the Dodd-
Frank Act's indemnification provisions, Representatives Robert 
Dold and Gwen Moore introduced H.R. 4235, the ``Swap Data 
Repository and Clearinghouse Indemnification Correction Act of 
2012.'' During a March 21, 2012 hearing on the legislation, the 
Subcommittee on Capital Markets and Government Sponsored 
Enterprises received testimony from Ethiopis Tafara, the 
Director of the Office of International Affairs at the SEC, who 
acknowledged the problems associated with the indemnification 
provisions in the Dodd-Frank Act and the need for a legislative 
fix. Mr. Tafara stated that ``[t]he requirement presents a 
barrier to U.S. and foreign governmental entities' ability to 
obtain data from a security-based swap data repository, in 
particular because U.S. and most other foreign governmental 
entities lack the legal authority to enter into the necessary 
indemnification agreement required by Section 763(i).'' Mr. 
Tafara testified that the SEC is ``concerned that there is a 
potential danger to our regulatory framework if foreign 
regulators are unable to access data held by SEC-registered 
security-based swap data repositories.'' Mr. Tafara concluded 
that the ``SEC recommends that Congress consider removing the 
indemnification requirement added by the Dodd-Frank Act,'' 
which ``would assist the SEC, as well as other U.S. regulators, 
in securing the access it needs to data held in global trade 
repositories.''

                                Hearings

    On March 21, 2012, the Subcommittee on Capital Markets and 
Government Sponsored Enterprises held a hearing entitled ``H.R. 
__, the Swap Data Repository and Clearinghouse Indemnification 
Correction Act of 2012,'' to consider a discussion draft of 
H.R. 4235. This was a two-panel hearing, and the following 
witnesses testified:
     Mr. Ethiopis Tafara, Director, Office of 
International Affairs, U.S. Securities and Exchange Commission
     Mr. Daniel Berkovitz, General Counsel, U.S. 
Commodity Futures Trading Commission
     Mr. Donald Donahue, Chief Executive Officer, The 
Depository Trust & Clearing Corporation

                        Committee Consideration

    The Committee on Financial Services met in open session on 
March 27, 2012, and ordered H.R. 4235, as amended, favorably 
reported to the House by voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. 
There were no record votes taken on amendments or in connection 
with ordering H.R. 4235, as amended, reported to the House.
    During consideration of H.R. 4235 by the Committee, the 
following amendment and motion were considered:
    1. An amendment offered by Mr. Dold, no. 1, to add a short 
title to the bill: ``The Swap Data Repository and Clearinghouse 
Indemnification Correction Act of 2012,'' was agreed to by 
voice vote.
    2. A motion offered by Mrs. Biggert to move the previous 
question on H.R. 4235 was agreed to by voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held hearings and 
made findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    The objective of H.R. 4235 is to repeal the indemnification 
provisions in Sections 725, 728, and 763 of the Dodd-Frank Act 
to increase market transparency, facilitate global regulatory 
cooperation, and ensure that U.S. regulators have access to 
necessary swaps data from foreign data repositories, 
derivatives clearing organizations, and regulators.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                                    April 27, 2012.
Hon. Spencer Bachus,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4235, the Swap 
Data Repository and Clearinghouse Indemnification Correction 
Act of 2012.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 4235--Swap Data Repository and Clearinghouse Indemnification 
        Correction Act of 2012

    Under current law, derivatives clearing organizations 
(DCOs) and swap data repositories (SDRs) are required to report 
information about swap transactions to the Commodity Futures 
Trading Commission (CFTC), or in the case of security-based 
SDRs, to the Securities and Exchange Commission (SEC). Further, 
such information must be shared with other regulatory agencies, 
both foreign and domestic, upon request and under certain 
conditions. H.R. 4235 would eliminate one of those conditions: 
that those other regulatory agencies indemnify the SDRs and the 
CFTC (or the SEC for security-based swap information) for 
expenses that arise from litigation related to the shared 
information. The bill would retain the current-law condition 
that those other regulatory agencies agree to certain 
confidentiality requirements prior to receiving the data.
    Neither the CFTC nor the SEC (the agencies required to 
develop and enforce regulations related to swap transactions) 
has finalized regulations related to DCOs and SDRs. Based on 
information from the two agencies, CBO expects that 
incorporating the provisions of H.R. 4235 at this point in the 
regulatory process would not require a significant increase in 
the workload of either agency. Therefore, CBO estimates that 
any change in discretionary spending to implement the 
legislation, which would be subject to the availability of 
appropriated funds, would not be significant. Further, under 
current law, the SEC is authorized to collect fees sufficient 
to offset the cost of its annual appropriation each year; 
therefore, we estimate the net cost to the agency would be 
negligible, assuming annual appropriation actions consistent 
with that authority.
    Based on information from several federal financial 
regulators, CBO estimates that enacting H.R. 4235 would have an 
insignificant effect on direct spending; therefore, pay-as-you-
go procedures apply. (Enacting the bill would not affect 
revenues.) Under current law, any litigation expenses of the 
federal government related to sharing information about swap 
transactions, in certain instances, would be paid by foreign 
regulators. Under the bill, such expenses would become a 
federal liability. CBO expects that any such liability would 
not arise in the next 10 years because the regulations are yet 
not in place.
    H.R. 4235 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Susan Willie. 
The estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 4235 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    The short title of the Act is the ``Swap Data Repository 
and Clearinghouse Indemnification Correction Act of 2012.''

Section 2. Repeal of indemnification requirements

    This section repeals the indemnification provisions in 
Sections 725, 728, and 763 of the Dodd-Frank Act.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                         COMMODITY EXCHANGE ACT




           *       *       *       *       *       *       *
SEC. 5B. DERIVATIVES CLEARING ORGANIZATIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (k) Reporting Requirements.--
          (1) * * *

           *       *       *       *       *       *       *

          [(5) Confidentiality and indemnification agreement.--
        Before the Commission may share information with any 
        entity described in paragraph (4)--
                  [(A) the Commission shall receive a written 
                agreement from each entity stating that the 
                entity shall abide by the confidentiality 
                requirements described in section 8 relating to 
                the information on swap transactions that is 
                provided; and
                  [(B) each entity shall agree to indemnify the 
                Commission for any expenses arising from 
                litigation relating to the information provided 
                under section 8.]
          (5) Confidentiality agreement.--Before the Commission 
        may share information with any entity described in 
        paragraph (4), the Commission shall receive a written 
        agreement from each entity stating that the entity 
        shall abide by the confidentiality requirements 
        described in section 8 relating to the information on 
        swap transactions that is provided.

           *       *       *       *       *       *       *


SEC. 21. SWAP DATA REPOSITORIES.

  (a) * * *

           *       *       *       *       *       *       *

  [(d) Confidentiality and Indemnification Agreement.--Before 
the swap data repository may share information with any entity 
described in subsection (c)(7)--
          [(1) the swap data repository shall receive a written 
        agreement from each entity stating that the entity 
        shall abide by the confidentiality requirements 
        described in section 8 relating to the information on 
        swap transactions that is provided; and
          [(2) each entity shall agree to indemnify the swap 
        data repository and the Commission for any expenses 
        arising from litigation relating to the information 
        provided under section 8.]
  (d) Confidentiality Agreement.--Before the swap data 
repository may share information with any entity described in 
subsection (c)(7), the swap data repository shall receive a 
written agreement from each entity stating that the entity 
shall abide by the confidentiality requirements described in 
section 8 relating to the information on swap transactions that 
is provided.

           *       *       *       *       *       *       *

                              ----------                              


                    SECURITIES EXCHANGE ACT OF 1934

TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *


                      PERIODICAL AND OTHER REPORTS

  Sec. 13. (a) * * *

           *       *       *       *       *       *       *

  (n) Security-based Swap Data Repositories.--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Duties.--A security-based swap data repository 
        shall--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(H) Confidentiality and indemnification 
                agreement.--Before the security-based swap data 
                repository may share information with any 
                entity described in subparagraph (G)--
                          [(i) the security-based swap data 
                        repository shall receive a written 
                        agreement from each entity stating that 
                        the entity shall abide by the 
                        confidentiality requirements described 
                        in section 24 relating to the 
                        information on security-based swap 
                        transactions that is provided; and
                          [(ii) each entity shall agree to 
                        indemnify the security-based swap data 
                        repository and the Commission for any 
                        expenses arising from litigation 
                        relating to the information provided 
                        under section 24.]
                  (H) Confidentiality agreement.--Before the 
                security-based swap data repository may share 
                information with any entity described in 
                subparagraph (G), the security-based swap data 
                repository shall receive a written agreement 
                from each entity stating that the entity shall 
                abide by the confidentiality requirements 
                described in section 24 relating to the 
                information on security-based swap transactions 
                that is provided.

           *       *       *       *       *       *       *


                                  
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