Last week on Capitol Hill, there was an increase in the rhetoric and debate on the pace of Dodd-Frank Reform. Financial Services Committee Chairman Spencer Bachus commented that "All of us know that on the highway 'speed kills.' Speed can also kill jobs when Washington rushes sweeping regulations into place without giving the public adequate time to comment." U.S. Treasury Deputy Secretary Neal Wolin, meanwhile, refuted the growing criticism that financial reform efforts were moving too fast, could hurt liquidity in derivatives markets and could drive US market players overseas. There is no doubt that the deadlines in the Dodd-Frank Act are ambitious, and it has become clear to many that a large number of those deadlines are not capable of being hit, making extensions are inevitable.
Much of the criticism is directed at the SEC and CFTC, the two agencies with the heaviest burden under Dodd-Frank. The SEC is responsible for more than 100 rulemakings and 20 studies, and the CFTC is responsible for 60 new rules. This is quite a heavy load for each of them to carry, especially considering that the SEC issued fewer than 10 new rules per year in 2005 and 2006 and the CFTC averaged approximately 11 new rules per year over that same period. Looking to move forward as quickly as possible, this week the SEC and CFTC are expected to deliver their much-anticipated proposals spelling out key definitions that will help determine the reach of new swaps regulations. The new rules will define "swap," "security-based swap," and "security-based swap agreement," according to a notice on the SEC's website.
These definitions are critical because Dodd-Frank requires most swaps to be traded on regulated platforms and routed through clearinghouses. Questions that have been raised include whether contracts such as floating rate loans and insurance contracts will be deemed "swaps." The definitions are also critical because the SEC has oversight of "security-based" swaps, such as credit default swaps, that are tied to an underlying stock or bond or a narrow-based index of securities, while the CFTC has oversight over all other swaps. Thus, the definitions will guide the determination of which regulatory regime applies.