April 18, 2012
Is This Declawing Dodd-Frank Or Realistically Realizing It?
Posted by David Zaring

The SEC and CFTC are exempting, after a strong push from energy companies, firms that do less than $7 billion in derivatives trades per year from complying with the qualified dealers rules coming once Dodd-Frank is implemented:

On Wednesday, the Securities and Exchange Commission and theCommodity Futures Trading Commission are expected to approve a rule that would exempt broad swaths of energy companies, hedge funds and banks from oversight. Firms would not face scrutiny if they annually arrange less than $8 billion worth of swaps, the derivative contracts tied to interest rates and commodities like oil and gas.

The threshold is a not-insignificant sum. By one limited set of regulatory data, 85 percent of companies would not be subject to oversight. After five years, the threshold would reset to $3 billion; it is the same amount suggested by a group of energy companies in a February 2011 letter, according to regulatory records.

Two observations:

  • Implementation and rulewriting are the critical bits of Dodd-Frank, &c, &c.
  • I think that the derivatives program in the statute marks a paradigm shift in how we are supposed to regulate capital markets.  From a "level playing field" model that you see in the securities markets that is designed to promote capital formation through competition to a "safe and sound" model which subordinates that paradigm to considerations of avoiding systemic risk.  A move from securities regulation to financial supervision in other words.

Administrative Law, Finance, Financial Crisis, Financial Institutions | Bookmark

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