which describes the purpose of the council, this is the body, the 36 member body not to be confused with the 160 member plus body that is the assembly. the council as i understand it is empowered to do a number of things including to exercise the power outlined in section 2 of article 162, subsection o1 which is to recommend to the assembly rules, regulations and procedures on the equitable sharing of financial and other economic benefits derived from activities in the area and the payments and contributions made pursuant to article 82. so these are the royalties we're talking about, the escalating royalty that is begin at 1%, five years, and into the operation of the treaty and escalate gradually to 7% where they remain there after once

they achieve that level. it appears to me based on my reading of article 162 that the power of the council, this body on which the united states has a seat and has what you described as veto power, is a recommending body and it appears also to me as i look back at 160, section 160, subsection 2g that it is up to the assembly and not to the council to decide upon the equitable sharing of financial and other economic benefits from activities in the area. so, secretary clinton, i was wondering if you could help me understand is my reading correct or am i missing something? >> senator, the assembly cannot take up an issue unless recommended by the council. any decision that would impose any obligations on the united states or otherwise deal with

substance must go through the council. the secretariat has no decision making authority. the practical consequence of this is that the united states would have the right to reject or veto any decision that would result in a substantive obligation on the united states or that would have financial and budgetary implications, and that is due to the fact that the u.s. is unique in having a permanent seat on the sea bed authority council which is the main decision making body and that important decisions must be made by consensus, so it is our very strong conviction that as a party the u.s. would have an unprecedented ability to influence the deep sea bed mining activities worldwide. there is no other international organization that gives one country and one country only a

permanent membership on the key decision making body. so as examples of decisions, subject to u.s. approval, would be rules, regulations or procedures implementing the sea bed maining regime or amendments there to, any decisions relating to the distribution of payments for oil and gas production on the continental shelf beyond 200 nautical miles, adoption of any amendments to the sea bed mining regime, and just finally, you know, i think it is worth saying and this really echos something that the chairman said, royalties under this convention are not a net loss to the united states but a net gain because companies will not drill that far out so there is no money that would be coming to the treasury or to the profit of the companies and if we're a party, we gain from both domestic

royalties and oil production, so i know that there is with any written document, and i am a recovering lawyer, so i have been in this position in my past life. there is a way to raise questions about where the comma is placed or where the parantheses occurs, but this debate over this convention has now gone on for 20 years, and when you look at the people from jim baker to conde rice to george schultz to michael cherdof to steven hadly that have supported this in both administrations republican and democratic, i just don't think we're all missing something, senator. i think we're trying our best to make a case that the united states will be advantaged and that in fact our sovereignty will be advanced. >> thank you, secretary clinton. i appreciate your analysis on that. i appreciate the fact that that

is your position that is the position of the administration. as i read as i too am a recovering lawyer, we have to call ourselves recovering rather than cured or ex-lawyer. as i read this, i see the fact that the assembly shall be considered the supreme organ, and i also see that the assembly and not the council has ultimate power to decide upon the equitable sharing of financial and other benefits. so that causes me to ask the question. what if those who serve on the assembly disagree with your interpretation? i understand it is your interpretation and that of the administration. i also understand that it is your interpretation and that of the administration, that of the united states of america, i suppose you could say, that the treaty does not as you point out adopt any framework to tie the united states into a climate change control regime or any kind of system that could limit

the emission of greenhouse gases, but in that context, the climate change context and in this context what happens if the assembly takes a different position, and in the climate change context, could not the assembly reach a different conclusion and read several provisions of the treaty including articles 207 and 212 coupled with the dispute resolution provisions of an next 6? could it not take that interpretation and conclude differently from the conclusions that you reached today? >> well, we do not believe that they could on either the plain reading or the intent of the convention but we also believe, senator, that concerns such as these are not only going to be properly vetted in these series of hearings but certainly can be taken into account with the resolution of ratification.

there is no obligation that the united states in the area of climate change would be forced to accept or adopt by anything done by the assembly under the convention on the law of the seas, but as an abundance of caution, that could certainly be clarified and insisted upon in ratification resolution language. >> i see my time has expired. as i close i would like to point out there is not just the assembly. we could get hauled into a tribunal called for under the annex and at that point if this is a ratified treaty arguably our courts would be bound to enforce the judgments of an international tribunal convened under the authority. thank you. >> senator lee, i am just

checking in on that, and it is my understanding that we would not be subject to that because we would be able to choose ash bush administrati arbitration, and the arbitration is limited but i see you're ready to leap. >> yes. arbitration. we get to choose two arbitrators, and the other side gets to choose two and if we can't come to an agreement as to the fifth, then that person is chosen, i believe, by the secretary general. >> but it is limited as to what it is. we'll go through this. we'll go through this and clarify it and as the secretary just said, secretary clinton, we're not going to subject ourselves. this exercise is not to diminish our sovereignty. it is to grow our sovereignty, and we believe this treaty in its whole will grow the sovereignty and we hope we can persuade you that in the end and so we have the ability through

the ratification process to be able to clarify some of that, but secondly i believe it will be clarified i think even your initial question if you look at i think it is 160g that you referred to about the rules and regulations, they're only able to make that decision in the assembly, quote, consistent with the convention and the rules and regulations and procedures of the authority. the rules and regulations and procedures of the authority are specifically set by the council and it is their -- and that is how it worked and that's how it does work. in the end the authority, the assembly is simply implementing what has been put forward and we have a veto over what that rule or regulation will be that they're implementing, so again this will be clarified appropriately and we'll have the experts here who can make that clear and in fact i would like to ask, i think it would be

helpful, madam secretary and mr. secretary, if your legal teams would put their heads together and if you -- i am going to leave the record open for a week and if you could submit your formal legal understanding of that to answer the senator's question and i think that would be particularly helpful to the record. >> we would be happy to, senator. >> senator lugar, do you have additional questions? >> on that basis let me just thank all of you. i think this has been a terrific opening engagement. i appreciate the obviously the focus of everybody on it. i am confident that these questions are going to be answered as we go forward and there is going to be plenty of opportunity. we will have more of the active commanders of each of the areas of concern who will speak to their experience in the field. we will have the businesses themselves come forward and we'll have some other groups and entities who are concerned and

have plenty of opportunity to vet this as we go forward. i think your testimony today was excellent and a terrific beginning to this process and we'll build the most extensive exhaustive record that has yet been built on this, and i think provide our colleagues in the senate with ample opportunity to be able to make a sound decision. so with that we thank you very much for joining us today and we thank you for the jobs you are doing, all of you. appreciate it very much. we stand adjourned.

more live programming coming up later today with eleanor clift and matthew spieler. the latest book is called selecting a president and they'll talk about the elections and the electoral system and it gelts under way at 1 p.m. eastern online at booktv.org. there is an extra day of booktv this holiday weekend on c-span 2. aaron burr may be best remembered for his duel with alexander hamilton. on after words the former director for asian affairs

victor kha on the impossible state of north korea. >> it is kind of a ridiculous dialog. you can tell them you need to improve your human rights situation and their response to you will be and we have had this conversation at the official level, the response to you will be, well, you, the united states, have human rights problems, too. i mean, it is not a comparable discussion. >> that's saturday night at 10. also this weekend marcus la trell details operation red wing sunday night at 10 eastern and three days of booktv this weekend on c-span 2. this is c-span 3 with politics and public affairs programming throughout the week and every weekend 48 hours of people and events telling the american story on american history tv. get our schedules and see past programs at our websites and you can join in the conversation on

social media sites. >> up next commodity futures trading commission chair gary gensler and mary schapiro told the senate banking committee tuesday they found out about j.p. morgan as $2 billion in losses through media reports. the fbi, sec are all conducting investigations on what happened. this next hearing focuses on the dlif tifz market and the regulatory law. senator tim johnson of south dakota chairs the hearing. it is about two hours.

>> i will call this hearing to order. today we will review the progress being made to reduce systemic risk and improve oversight of the derivatives market, but before we get to the main subject of this hearing, i want to make a few comments about the recent news made by j.p. morgan chase. the company's massive trading loss is a stark reminder of the

financial crisis of 2008 from that the necessity of wall street reform since the firm's may 10 conference call and members staff have jointly held briefings with regulators and briefing with the company itself. following this i announced last week i intend to call j.p. morgan's ceo jamie dimon to testify before the committee. in calling for mr. dimon to testify, i expect him to inform the committee of the details surrounding what has been reported to be a very complex trade. with today's hearing our june 6th bank supervision hearing with other key regulators and the treasury and the hearing with mr. dimon, the committee is

on its way to having a more complete understanding of the facts that brought the j.p. morgan matter and will help us better oversee the implementation of wall street reform. this trading loss has been a wake-up call for many opponents of wall street reform and the need to fully fund the agencies responsible for overseeing the swap trades that appeared to be at the core of the firm's hedging strategy. it is my hope that all of my colleagues who expressed such alarm about this matter will now join democrats in educating full to address this very issue that some suddenly seem so concerned about. it is understandable that this

high profile trading loss has caused me to renew the interest in wall street reform but as chairman i have never taken my eyes off the ball. that is why we are here today continuing our oversight responsibilities. focused on other provisions of wall street reform but what has far less attention is the impact of reform most certainly have on reducing the likelihood that banks would want to engage in certain high risk complex swap transactions in the first place. higher margin capital requirements for uncleared swaps increased current obligations realtime reporting requirements

and new antimanipulation authorities included in the wall street reform will reduce market risk and improve the integrity of swap trading between large financial firms. chairman schapiro and chairman gensler, i commend you and your staff for tireless efforts implementing these new reforms and i look forward to hearing from you today. as you continue your efforts, i urge your agencies to take a single unified approach to regulating across border transactions and to integrate this approach into all your swap rules. differences between your two sets of rules and implementation efforts should be minimized to improve compliance and lower costs and efforts by the u.s. to

promote a decision abroad will be more challenging if we cannot harmonize efforts by our agencies here at home. lastly, i would like to apologize in advance to my colleagues, but i will need to excuse myself for a 10:30 markup in the appropriations committee for a bit. senator merckly agreed to chair this hearing in my absence. to reserve time for questions opening statements will be limited to the chair and ranking member. however, i would like to remind my colleagues that the record will be open for the next seven days for additional statements and other materials. i now turn to senator shelby for his opening remarks. >> thank you, mr. chairman. since the passage of the dodd-frank act the proponents have repeatedly claimed that

both consumers and our financial markets will benefit from the new law. we now know that both of those claims are also. since last year chairman gary gensler over saw the largest consumer protection failure in the history of the cftc. under chairman gensler's watch customers of mf global had $1.6 billion of funds improperly taken from their accounts. the first and most basic responsibility i believe, mr. chairman, of the sftfc is to ensure that customer funds are not miss appropriated. yet despite all the new authorities conferred on the cftc by dodd-frank, the cftc was still unable to fulfill this primary responsibility to mf global customers. the cftc's failure's especially troubling here because the fund went missing during that time when it was well known that the

firm was under severe financial stress and the risk of miss appropriation there was very high. even more embarrassing is the fact that there were numerous cftc officials onsite at the firm when the funds went missing. while i am pleased to see that mf global trustee is making progress in returning funds to mf global customers, chairman gensler, nonetheless owes the public, i believe, a full accounts of how they failed to protect those customer assets in the first place. unfortunately, chairman gensler continues to recuse himself from all matters pertaining to mf global which effectively insulates him from congressional scrutiny. mr. chairman, i believe the public deserves more from their financial regulators. we need regulators who are willing to explain their actions rather than run for the hills. if there were regulatory failures, the responsible

parties need to be held accountable for their actions and they need to admit what happened. chairman gensler's recusal impeded congress' ability to examine every facet of the mf global failure. i hope today chairman gensler will be morecourt following about his involvement so that congress can finally begin to understand what role he played and how congress should respond. i also hope that chairman gensler will be more forth coming about his management of the cft's implementation of dodd-frank. chairman gensler and the sec chairman mary schapiro have jointly created widespread uncertainty about the regulation of derivitives. according to a recent report regulators met only one third of the dodd-frank rule making deadlines. while there is no question that the rule writing process mandated by dodd-frank makes it very difficult to meet some of the deadlines, the regulators

share culpability here. for example, all the cftc and serk have proposed numerous new rules from did he active tifz, they have still, still not proposed rules that clarify the definition of a swap. let me repeat that. almost two years after the passage of dodd-frank giving the cftc and the sec joint jurisdiction on the swap markets, they have still not agreed on the definition of a swap yet somehow they finalized rules based among swap activities defining and governing swap dealers and major swap participants. if market participants don't know which of their activities will fall under the swap definition, how can they be expected to know whether these activities will be subject to the patchwork of registration, record keeping, clearing and trading rules? if market participants do not know if their activities will

cause them to be classified as a swap dealer or a major swap participant, how can they be expected to know when to submit comments? this is just one example that i am bringing out here of how dodd-frank and this implementation have created unnecessary uncertainty in our markets. as the american economy continues to struggle with high unemployment, sluggish growth in the fallout from the on going european crisis, the last thing i believe we need are self inflicted wounds. this include those inflicted by congress, regulators and most recently poorly conceived trading and hedging activities in one of our largest banks. today's hearing presents out here in the banking committee an opportunity to discuss all of these and how they can be avoided in the future. i thank you for calling this hearing, mr. chairman. >> thank you, senator shelby. i would like to briefly introduce our witnesses neither

of whom are strangers to this committee. chairman mary schapiro is the head of the u.s. securities & exchange commission. chairman gary gensler is head of the commodity futures trading commission and we appreciate both of you taking time out of your schedules to be with us today. >> as you know, title 7 creates an entirely new regulatory regime for over-the-counter derivitives and directs the commission and the cftc to write a number of rules necessary to implement it. of course title 7 is just one of the many areas ranging from credit rating agencies to private funding municipal advisory registration to specialized corporate disclosures where the sec is charged with writing rules. the sec already has proposed or adopted rules for over three

fourths of the more than that mandate rule making and finalized 14 of the more than 20 studies and reports that the dodd-frank act directs us to complete. the commission has proposed almost all of the rules required by title 7. we're continuing to work diligently to implement all provisions of title 7 as well as the many other rules we're charged with drafting and to coordinate implementation with the cftc and other domestic and foreign regulators. under the dodd-frank act regulatory authority over sbaps is divided between the cftc and the commission. the law signs the sec the authority to regulate security based swaps while the cftc is primary regulatory authority over the bulk of the title 7 over-the-counter derivitives markets called swaps. our rule makes are designed to reduce transparency, facilitate the centralized clearing of security based swaps to reduce counter party risk. they're also designed to enhance

investor protection by increasing disclosure regarding security based swap transactions and mitigating conflicts of interest. by promoting transparency, efficiency and stability, this framework is intended to foster a more stable and competitive market. in implementing title 7 sec staff is in regular contact with the staffs of the cftc, the if early reserve board and other financial regulators. in particular, commission staff is coordinated extensively with cftc staff in the development of the definitional rules including joint rules for the defining key product terms which we expect to finalize soon and rules further defining categories of market participants that we adopted last month. although the timing and sequencing of the cftc and the sec rule making may vary they're the subject of extensive discussions and the objective of consistent and comparable requirements will continue to guide our efforts. the dodd-frank act also

specifically requires that the sec, the cftc and the prudential regulators consult and coordinate with foreign regulatory authorities on the establishment of consistent international standards. accordingly the commission is actively working with regulators abroad to address the regulation of derivitives, encouraging foreign regulators to develop rules and standards complementary to our own. the commission expects to complete the last of the core elements of our proposal phase in the near term. in particular, rules related to the financial responsibility of security based swap dealers and major security based swap participants. the commission is finalizing a policy statement regarding how the substantive requirements under title 7 within our jurisdiction will be put into effect. this policy statement will establish an appropriate and workable sequence and timeline for the implementation of the rules. as a practical matter certain rules will go into effect before others can be implement and had market participants will