One year after the enactment of the Dodd-Frank Act, US policymakers have yet to detail many of the rules which will clarify the extent to which Wall Street giants and commodity markets will be regulated. Democrats and others argue that banks are still too big, the derivatives market lacks controls and transparency, and that the rule making process has been slow. Republican lawmakers and the financial industry say that regulators have gone too far with onerous demands which are hurting economic recovery. The coming months are expected to clarify new capital and liquidity standards, and the Volcker limits on proprietary trading. An initial draft of the Volcker rule is expected some time this summer, with a final rule due by October.
On 21 July, the Commodity Futures Trading Commission (CFTC) Chairman, Gary Gensler, said that the CTFC could take up in September a long-anticipated rule designed to curb excessive speculation in the commodity markets. Traders have argued that curbs could increase price volatility by removing liquidity and driving business to markets overseas. The CFTC continues to take a tough stance on market manipulation and in May sued oil trader Arcadia Petroleum for manipulation. A former portfolio manager for Moore Capital Management agreed last week to pay the CTFC US$1 million to settle charges he attempted to manipulate prices of palladium and platinum futures contract on the NYMEX, by engaging in a trading practice known as banging the close.
Some believe that the CFTC may re-propose a rule to allow clearinghouses more time before they have to decide whether to accept and guarantee trades in the US$600 trillion swaps market. The new proposal would require decisions as soon as technologically possible and, according to the CFTCs Chairman:
"The proposed rule promotes market participants access to central clearing, increases market transparency and supports market efficiency".
The CTFC has estimated that it will vote on at least 37 rules between July and October.
According to joint recommendations published by the CTFC, the Federal Reserve and the Securities and Exchange Commission (SEC), regulators plan to increase cooperation on overseeing US clearinghouses.
Regulators plans would see clearinghouse operators subject to an increased level of scrutiny as they prepare to handle more of the over-the-counter (OTC) derivatives market. Last week, the SEC was expected to increase its market oversight by adopting new rules to help track the activities of large traders. The large-trader reporting system, and a proposed rule for a consolidated audit trail, could be finalised later this year.
G20 leaders agreed in 2009 that to curb risks, derivatives traded OTC or privately between banks should be cleared centrally and reported to a repository by the end of 2012. Delays have also beset the rule making process in Europe. It has been reported that new EU derivatives rules are unlikely to be agreed until at least early autumn. Equally, Frances drive to get the worlds leading economies to toughen regulation on commodity markets appears to be losing traction as governments express concern that tighter trading rules may harm their financial interests.