When Dodd-Frank was signed into law on July 21, 2010, it was the just the beginning of a very long process.\u00a0 The Act came in at over 2,000 pages, but left the majority of the work – roughly 400 rules or studies – to 30 different federal agencies. Only 49 of the mandated rules have been finalized, and the deadline has passed for finalizing another 131.\u00a0 An additional 200 rules have deadlines approaching. On Tuesday, the Commodity Futures Trading Commission (CFTC) unanimously approved three new derivatives rules, bringing the number of final rules it is required to implement under Dodd-Frank law to 10, out of over 50 proposed rules assigned to that agency.<\/p>\n
SEC and CFTC officials are straining to write the dozens of rules required by Dodd-Frank. Some employees are being pulled away from their enforcement and oversight roles to take on rule writing responsibilities; tighter than expected budgets for the coming year will not ease the work load in either of these agencies. At the same time, there are at least 2 dozen bills in Congress that seek to dismantle parts of the new regulatory regime. This ongoing debate and tension is creating uncertainty about when and how much of Dodd-Frank will eventually be implemented.<\/p>\n
Dodd-Frank\u2019s July 16 implementation date came and went, and the financial sector has not gone into a state of meltdown. We continue to watch the various rules debated, agency heads speak before Congress, and different market sector lobby for exemptions, but thus far, Dodd-Frank has had a stronger bark than bite.<\/p>\n
As the U.S. struggles with Dodd-Frank, similar efforts are being undertaken worldwide. But while derivatives are largely global in nature and operate under multi-jurisdictional accepted standards and documentation, international coordination is always tricky. Regulators from different countries with locally focused objectives and priorities are being asked to agree to a common set of rules to achieve a result that is appropriate for all markets, and to take into account all of the financial institutions and investors will be affected by the intended and unintended consequences of the global coordination effort. \u00a0 And of course, the complexity of the issues involved creates the potential for regulatory arbitrage. Ultimately, though, it seems that global coordination for derivatives regulation will come down to the same set of issues, and the same delays that U.S. regulators are facing.<\/p>\n
Are the global delays in implementing financial reform going to undermine the goals of Dodd-Frank?\u00a0 Or will the extra time allow for more effective and appropriate rules?<\/p>\n
Over the past month we have tracked the news relating to Dodd-Frank and highlighted some issues of import to the markets and to our clients.\u00a0 We will continue to update you as more Dodd-Frank news is released.<\/p>\n
Highlights from our 30 Day Countdown<\/u>:<\/strong><\/p>\n 1.\u00a0Day 29: Concerns facing the OTC derivatives market in the absence of a workable regulatory structure<\/a> 2.\u00a0Day 28: FIA and ISDA Publishes Documentation for Cleared Swaps<\/a> 3.\u00a0Day 26: Investment Advisor Registration Deadline Causing Confusion<\/a> 4.\u00a0Day 25: Testimony by Mary Schapiro on Financial Regulatory Reform: The International Context<\/a> 5.\u00a0Day 24: The Status of Regulation in the EU<\/a> 6.\u00a0Day 20: Australia Contemplates New (but Limited) Derivative Market Reforms<\/a> 7.\u00a0Day 19: Asia On Par with U.S. OTC Derivatives Reform<\/a> 8.\u00a0Day 17: Smaller Funds May Have Trouble Finding Clearing Member<\/a> 9. Day 15: Definition of \u201cCommodity Pool\u201d Expanded July 16 10.\u00a0Day 13: SEC Re-defines Family Office<\/a> 11.\u00a0Day 11: Will SEC, CFTC Budget Cuts Impede Dodd-Frank?<\/a> 12.\u00a0Day 9: Firms Oppose FDIC Claw Back Provision<\/a> 13.\u00a0Day 7: Britain and EU Differ over Derivatives Reform Rules<\/a>
\nAspects of the Commodities Futures Modernization Act, which was passed in 2000 and exempted OTC swaps generally from regulation, will no longer be in effect.<\/em><\/p>\n
\nThe FIA and ISDA gathered a group of buy and sell side firms to create a standard template for the swaps market known as the FIA-ISDA Cleared Derivatives Execution Agreement. These agencies hope that this template can be universally used by those in the cleared swaps market.\u00a0<\/em><\/p>\n
\nAs a result of confusion regarding date guidelines, investment advisors are\u00a0<\/em>relying on the SEC extending the deadline for registration.<\/em><\/p>\n
\nDodd-Frank requires agencies such as the SEC, CFTC to consult with foreign regulators regarding the G20 agreement to implement OTC derivatives global regulation.<\/em><\/p>\n
\nThe E.U. appears to be waiting to see the impact that Dodd-Frank has on U.S. financial markets before implementing regulations of its own, leaving some U.S. market experts with concerns that financial transactions will migrate to Europe.<\/em><\/p>\n
\nAustralia\u2019s Council of Financial Regulators suggest that Australian lawmakers should take a more judicious approach to financial reform than American lawmakers did with Dodd-Frank.<\/em><\/p>\n
\nJapan amended its regulations under the Financial Instruments and Exchange Act (FIEA) and tightened the rules relating to the marketing of derivatives transactions and structured products by the financial services sector.<\/em><\/p>\n
\nExperts warn that smaller funds should secure a clearing member to ensure they are able to trade when Dodd-Frank comes into full effect.<\/em><\/p>\n
\nThe expanded definition of \u201ccommodity pool\u201d under Dodd-Frank any pooled investment vehicle that invests in commodities derivatives, interest rate derivates, and most currency derivatives (just to name a few).<\/em><\/p>\n
\nSEC re-defines family offices and determines they are no longer immune from registration under the Investment Advisers Act of 1940.<\/em><\/p>\n
\nThe SEC and CFTC face budget cuts of up to 15% despite increased rule making burdens on their agencies.<\/em><\/p>\n
\nThe FDIC OK\u2019s a claw back provision, in which executives may be required to give back up to two years of salary if deemed responsible for a financial firm\u2019s failure.<\/em><\/p>\n
\nEU announces that it will push back all decisions on derivatives regulation until September 2011.<\/em><\/p>\n