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US lawmakers target SEC FOIA exemption in new financial reform law

By Brian Scheid in Washington

August 6 - A provision included in the new financial reform law that would exempt from disclosure under the Freedom of Information Act some proprietary and client data financial institutions provide to the US Securities and Exchange Commission is drawing opposition from some members of Congress.

Two bills have been introduced to strip the provision from the law and the provision will be the subject of a US House of Representatives Financial Services Committee hearing next month.

The FOIA exemptions for the SEC, which authorize the agency to deny FOIA requests for some documents the SEC obtains from brokers, hedge funds and other market players, have drawn the ire of members of the Senate Judiciary Committee.

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On August 5, four members of the the panel introduced a bill to strip the exemption provision from the law.

The bill is sponsored by Senator Judiciary Committee Chairman Patrick Leahy, a Vermont Democrat, and Senators John Cornyn, Republican-Texas, Charles Grassley, Republican-Iowa, and Ted Kaufman, Democrat-Delaware.

In a letter sent August 4 to SEC Chairman Mary Schapiro, the four said the provision "could undermine the very important goal of bringing more transparency to Wall Street if improperly interpreted and implemented."

In a statement August 5, Leahy said the proposed legislation would "amend the law to eliminate several broad FOIA exemptions for SEC records that were recently enacted," in the new reform law.

Grassley said in a statement that the bill "will help plug this glaring hole in the new financial regulation law."

In addition, the senior Republican on the US House Committee on Oversight and Government Reform Committee, California Representative Darrell Issa has introduced a bill to eliminate the exemption from the new law.

US House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, has scheduled a September 18 hearing on the issue, citing the "serious questions that have been raised about the impact this provision could have on access to important information about financial transactions."

"This should provide ample time to take corrective legislation action if needed," Frank said.

Frank and Senate Banking Committee Chairman Christopher Dodd, Democrat-Connecticut, were the chief architects of the financial reform legislation.

In a July 30 letter to Frank, Schapiro said the FOIA provisions do not provide a "blanket" SEC exemption from FOIA.

She said they are needed because of the reluctance of trading firms to supply confidential information, such as trading algorithms and internal audit reports out of fear it could be made public.

"In order for our efforts to be successful, it is important that registered entities be able to provide us with access to confidential information without concern that the information will later be made public," Schapiro wrote.

The legislation does not provide a similar exemption for the Commodity Futures Trading Commission.

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