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Congressman David Scott (GA-13) provided the following remarks during the  House Agriculture Committee hearing to examine the work of regulators and market participants to safeguard derivative clearinghouses.

Click here to watch video of Congressman Scott’s exchange with Mr. Scott A. Hill, Chief Financial Officer,
Intercontinental Exchange, Atlanta, GA, and Mr. Jerrold E. Salzman, on behalf of CME Group.

Rep. Scott: Thank you, Mr. Chairman. I want to ask several questions here. And let me just commend the panel on the expertness that you all are dealing with—what is a very complex and complicated system. But, I want to first of all, Mr. Hill, address this question to you. We recently saw that the EU proposed additional standards for clearinghouse regulations, and I believe that this will tie into the Brexit determination. And I want to ask your opinion on whether or not these proposed standards threaten the equivalence determination that we negotiated for, we fought for so long, and how do you view this from the perspective of cross-border competition and cooperation?

Mr. Hill: Thank you Congressman Scott, that’s a really important question-- And Happy Birthday. I would tell you, so for the committee’s benefit, if you haven’t seen it, what the European commission has done is published a paper that has effectively looked at how they will regulate clearinghouses that aren’t on the European continent, but in their opinion may have some systemic risk, particularly around Euro-denominated products. And they define two tiers of clearing houses: Tier 1 is not effectively material, we’re not going to worry about it, we’ll defer to the home jurisdiction. Tier 2 is a very, very broad category that can range from anything to “we’ll work closely with the home regulator,” to “Europe will have a direct oversight of non-European CCP,” to the very extreme of “we will not allow our European companies to use that CCP if they remain located outside of Europe.”

And so, unfortunately Congressman, there is still—that’s a wide breath of possibilities. I think it’s difficult to say what it will mean because effectively they’ve left all the cards on the table, they’ll have complete optionality. What they’ll do—I don’t know that it will be a threat to the equivalency that I agree with you that we worked long and hard to establish and the CFTC particularly did a wonderful job to work with our European colleagues to reach that agreement. So I can’t say for certain that it will impact it, but it has the possibility to impact it, if for example, the European regulators decide that a U.S.-based clearinghouse or in our case a U.K-based clearinghouse clears Euro-denominated products in a sufficient amount that they deem to create risk. It creates certainty without a doubt.

Rep. Scott: Well, thank you Mr. Hill. I want to turn my attention to you Mr. Salzman.  In addition to my work here on the Agriculture committee, I am also a member of the Financial Services Committee. And we recently reported out a bill – controversial, that I felt had serious problems, and that’s the Financial CHOICE Act, because it repeals both Title 2, which provides for the orderly liquidation authority to wind down in a crisis, and then it also repeals Title 8 which affects deposit, in the Federal Reserve, in the Dodd-Frank Act. How damaging is this and could you share with us why it’s important that if and as we move forward that we keep these two sections in place?

Mr. Salzman: Well, I’m going to be a bit more limited and less political if I can. The part of Title 8 that’s definitely important to us as everybody here that’s testified has access to the Fed accounts and access to the Fed window and to the extent that’s preserved, I don’t want to jump in and talk about essentially getting rid of the rest of Title 8. With respect to Title 2, and the authority to wind down an exchange, a clearinghouse: I am deeply concerned that the determinations made by the European regulators on equivalence depended on the notion that there was an authority in the government. And I’m very concerned that getting rid of Title 2 will give somebody in Europe a further excuse to assert their more power or to deny us—European clients. I want to be careful about that. With respect to the CHOICE Act itself, there’s actually some very interesting things that the CHOICE Act and other parts, as I say, I don’t want to be political if I can help it about that.

Rep. Scott: Thank you.