[House Report 113-106]
[From the U.S. Government Publishing Office]


113th Congress                                            Rept. 113-106
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 2

======================================================================



 
 SWAP DATA REPOSITORY AND CLEARINGHOUSE INDEMNIFICATION CORRECTION ACT 
                                OF 2013

                                _______
                                

 June 12, 2013.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 742]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 742) 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 without amendment and recommend that the bill 
do pass.

                          Purpose and Summary

    H.R. 742, 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'') (Pub. L. No. 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 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 have prompted 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 an 
April 11, 2013 hearing of the Capital Markets and Government 
Sponsored Enterprises Subcommittee hearing, Christopher Childs, 
Managing Director and Chief Executive Officer, DTCC Data 
Repository (U.S.), stated that, ``The continued presence of the 
indemnification requirement is a significant barrier to the 
ability of regulators globally to effectively utilize the 
transparency offered by a trade repository registered in the 
U.S.''
    In testimony before the Subcommittee on February 8, 2012, 
Larry Thompson, DTCC's General Counsel, testified 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 then-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 SEC staffs 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.''
    During a March 21, 2012 hearing on identical legislation 
introduced in the 112th Congress, the Subcommittee on Capital 
Markets and Government Sponsored Enterprises received testimony 
from Ethiopis Tafara, the former Director of the SEC's Office 
of International Affairs, 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 further 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

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Sponsored Enterprises held a 
hearing on H.R. 742 on April 11, 2013.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
May 7, 2013, and ordered H.R. 742 to be reported favorably to 
the House without amendment by a recorded vote of 52 yeas to 0 
nays (Record vote no. FC-9), a quorum being present.

                            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. The 
sole vote in committee was a motion by Chairman Hensarling to 
report the bill favorably to the House without amendment. The 
motion was agreed to by a recorded vote of 52 yeas to 0 nays 
(Record vote no. FC-9), a quorum being present.

                                              RECORD VOTE NO. FC-9
----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Hensarling.................        X   ........  .........  Ms. Waters.......        X   ........  .........
Mr. Gary G. Miller (CA)........        X   ........  .........  Mrs. Maloney (NY)        X   ........  .........
Mr. Bachus.....................        X   ........  .........  Ms. Velazquez....        X   ........  .........
Mr. King (NY)..................        X   ........  .........  Mr. Watt.........        X   ........  .........
Mr. Royce......................        X   ........  .........  Mr. Sherman......        X   ........  .........
Mr. Lucas......................        X   ........  .........  Mr. Meeks........        X   ........  .........
Mrs. Capito....................        X   ........  .........  Mr. Capuano......        X   ........  .........
Mr. Garrett....................        X   ........  .........  Mr. Hinojosa.....        X   ........  .........
Mr. Neugebauer.................        X   ........  .........  Mr. Clay.........        X   ........  .........
Mr. McHenry....................        X   ........  .........  Mrs. McCarthy            X   ........  .........
                                                                 (NY).
Mr. Campbell...................        X   ........  .........  Mr. Lynch........        X   ........  .........
Mrs. Bachmann..................  ........  ........  .........  Mr. David Scott          X   ........  .........
                                                                 (GA).
Mr. McCarthy (CA)..............        X   ........  .........  Mr. Al Green (TX)        X   ........  .........
Mr. Pearce.....................        X   ........  .........  Mr. Cleaver......  ........  ........  .........
Mr. Posey......................        X   ........  .........  Ms. Moore........        X   ........  .........
Mr. Fitzpatrick................  ........  ........  .........  Mr. Ellison......        X   ........  .........
Mr. Westmoreland...............  ........  ........  .........  Mr. Perlmutter...        X   ........  .........
Mr. Luetkemeyer................        X   ........  .........  Mr. Himes........        X   ........  .........
Mr. Huizenga (MI)..............        X   ........  .........  Mr. Peters (MI)..        X   ........  .........
Mr. Duffy......................        X   ........  .........  Mr. Carney.......        X   ........  .........
Mr. Hurt.......................        X   ........  .........  Ms. Sewell (AL)..  ........  ........  .........
Mr. Grimm......................        X   ........  .........  Mr. Foster.......        X   ........  .........
Mr. Stivers....................        X   ........  .........  Mr. Kildee.......  ........  ........  .........
Mr. Fincher....................        X   ........  .........  Mr. Murphy (FL)..  ........  ........  .........
Mr. Stutzman...................        X   ........  .........  Mr. Delaney......        X   ........  .........
Mr. Mulvaney...................        X   ........  .........  Ms. Sinema.......        X   ........  .........
Mr. Hultgren...................        X   ........  .........  Mrs. Beatty......  ........  ........  .........
Mr. Ross.......................        X   ........  .........  Mr. Heck (WA)....        X   ........  .........
Mr. Pittenger..................  ........  ........  .........
Mrs. Wagner....................        X   ........  .........
Mr. Barr.......................        X   ........  .........
Mr. Cotton.....................        X   ........  .........
Mr. Rothfus....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                      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 states that H.R. 742 
will repeal prerequisites that a swap data repository or 
derivatives clearing organization agree to indemnify the SEC or 
CFTC, as the case may be, before they may share information 
with specified regulatory entities.

   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 Estimates

    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:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 17, 2013.
Hon. Jeb Hensarling,
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. 742, the Swap Data 
Repository and Clearinghouse Indemnification Correction Act of 
2013.
    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. 742--Swap Data Repository and Clearinghouse Indemnification 
        Correction Act of 2013

    Under current law, derivatives clearing organizations 
(DCOs) and swap data repositories (SDRs) must report 
information about swap transactions to the Commodity Futures 
Trading Commission (CFTC), or in the case of SDRs that receive 
information about securities-based swaps, to the Securities and 
Exchange Commission (SEC). (A swap is a contract that calls for 
an exchange of cash between two participants, based on an 
underlying rate or index or the performance of an asset.) Such 
information also must be shared with other regulatory agencies, 
both foreign and domestic, if those agencies request the 
information and agree to certain conditions.
    H.R. 742 would eliminate one of those conditions--that 
agencies requesting the information 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 still require the regulatory 
agencies requesting the information to agree to certain 
confidentiality requirements prior to receiving the data.
    Based on information from the CFTC and the SEC, CBO expects 
that implementing the provisions of H.R. 742 would not require 
a significant increase in their workloads because neither 
agency expects to revise rules already in place. Therefore, CBO 
estimates that any change in discretionary spending to 
implement the legislation would be insignificant. 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 that 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. 742 would have an 
insignificant effect on direct spending and revenues; 
therefore, pay-as-you-go procedures apply. 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. Because the 
regulations have only been finalized within the past year and 
any potential litigation is unlikely to be resolved quickly, 
CBO expects those costs would not arise in the next 10 years.
    H.R. 742 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.
    On April 11, 2013, CBO transmitted a cost estimate for H.R. 
742, the Swap Data Repository and Clearinghouse Indemnification 
Correction Act of 2013, as ordered reported by the House 
Committee on Agriculture on March 20, 2013. Both versions of 
the bill are identical, and the CBO cost estimates are the 
same.
    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. 742 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(j) of H. Res. 5, 113th Cong. (2013), 
the Committee states that no provision of H.R. 742 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(k) of H. Res. 5, 113th Cong. (2013), 
the Committee states that H.R. 742 does not require any 
directed rulemakings.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 742 as the ``Swap Data Repository 
and Clearinghouse Indemnification Correction Act of 2013.''

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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