U.S. Sen. Mike Rounds (R-SD), a member of the U.S. Senate Banking, Housing, and Urban Affairs Committee, has introduced bipartisan legislation that would facilitate liquidity in options markets by requesting bank regulators move toward a newer, internationally accepted, risk-sensitive accounting standard.
Sen. Rounds on July 31 introduced the bipartisan Options Markets Stability Act, along with U.S. Sen. Tammy Duckworth (D-IL). The bill is the Senate version of the same-named H.R. 5749, which would require the appropriate federal banking agencies to increase the risk-sensitivity of the capital treatment of certain centrally cleared exchange-listed options and derivatives, according to the text of the bill.
H.R. 5749, introduced on May 10 by U.S. Rep. Randy Hultgren (R-IL), received unanimous House approval, 385-0, on July 10. The Senate received the bill on July 11 and referred it for consideration to the Senate Banking, Housing, and Urban Affairs Committee, which will reconcile it with the Senate version.
“The current bank risk exposure regulations have had the impact of directing capital away from centrally cleared options markets,” Sen. Rounds explained in a statement released this week. “This has had the effect of hampering liquidity and violates one of the principles of post-crisis regulation: strengthening centralized clearing and avoiding riskier over-the-counter trading.”
In the most extreme cases, the senator said a lack of liquidity in the options markets could create sudden market crashes, which would undermine the stability of the nation’s broader markets.
“The Federal Reserve agreed in 2014 to move towards the internationally accepted, risk-sensitive standardized approach to counterparty credit risk (SA-CCR),” he continued. “Since that time, however, the Fed has delayed implementing the new standard.”
Sen. Rounds said he has repeatedly asked the Federal Reserve about its adoption timeline, but has received no response.
“American investors can’t continue to wait,” he said. “Our common sense legislation would modify current capital requirements to reflect actual risk and would strengthen and safeguard our economy.”
Sen. Duckworth added that the measure also would streamline the regulatory process to ensure that the options markets remain viable, while maintaining the soundness of the overall U.S. financial system.
“These are important steps to help businesses in Illinois and across the country grow and have access to capital,” said Sen. Duckworth. “I’m proud to work with Senator Rounds on this bipartisan legislation.”