Dupage Policy Journal

Dupage Policy Journal

Tuesday, February 18, 2020

Financial Services Committee unanimously passes resolution aimed at facilitating liquidity in options markets


By Glenn Minnis | Jun 15, 2018

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U.S. Rep. Randy Hultgren (R-Plano)

The House Committee on Financial Services, led by U.S. Rep. Randy Hultgren (R-Plano), has unanimously passed House Resolution 5749, otherwise known as the Options Markets Stability Act, which aims to facilitate liquidity in options markets by requiring bank regulators to provide targeted capital relief.

“Illinois is the birthplace and home of listed options markets,” Hultgren said in a press release. “Healthy options markets provide ample opportunity for investors to plan for the future and hedge risk. The market volatility seen in equity markets earlier this year exposed the extent to which existing rules are restricting liquidity when it is needed the most. Unfortunately, market makers who provide liquidity for listed options are indirectly constrained by bank capital rules from fulfilling their role in maintaining price stability, leading to less liquidity and higher costs for investors who want to hedge risk.

Hultgren, a member of the House Committee on Financial Services who also serves as the vice-chair of the Subcommittee on Capital Markets, Securities and Investment and is also a member of the Subcommittee on Housing and Insurance, stressed that the time for such action is now.

“Investors do not have the luxury of waiting any longer on our bank regulators to act,” he added in the release. “I sponsored the Options Markets Stability Act so investors can manage risk in volatile markets at a lower cost. I thank the Financial Services Committee for its support and look forward to the full House taking up this legislation soon.”

As currently amended, HR 5749 would also require federal bank regulators to “establish a methodology for calculating the counterparty credit risk exposure, at default, of a financial institution pursuant to the risk-based and leveraged-based capital rules.”

The legislation grants a full year for federal banking regulators to adopt a policy stipulating that they consider a number of items, including the availability of liquidity, and ultimately requires the Federal Reserve to submit a report to Congress assessing the impact of their final rule.

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