Implementing the Dodd–Frank Act: Progress to Date and Recommendations for the Future

Abstract

I know that I don't have to tell you that the Commodity Futures Trading Commission (CFTC) has been extraordinarily busy in its efforts to fulfill the regulatory mandates of the Dodd--Frank Wall Street Reform and Consumer Protection Act. As of May 2011, the CFTC has put forth 66 proposed and final rules under the Dodd--Frank Act. Not even counting the last four rule proposals the CFTC voted on, we're at over 1,046 dense Federal Register pages filled with legal jargon and regulatory requirements. you were to run the comment periods on all of those proposals consecutively, it would take 2,964 days, or a little over eight years. I doubt I have to give those numbers much context; they speak for themselves. But just for fun, if you were to lay each of those Federal Register pages end to end, they'd stretch two-thirds of the way up the newly renamed Willis Tower. And we're not done yet, so I am sure we'll reach the top of the tower before this is all over. Sequencing and implementation When you're putting out that much paper, I think you should have a plan for how to get through it. We are nearly halfway through the rulemaking process and we are just about to start consideration of the final rules. As Winston Churchill once advised, If you are going through hell, keep going. I'm going to accept that advice, but I have made two recommendations for the chairman of the CFTC to make our trip a little better. First, I have asked the chairman to put forward a provisional sequencing of the final rules to allow the market to comment on where you think we got it right and, of course, where we can do better. Second, and even more importantly, the CFTC should set an implementation schedule for all of the Dodd--Frank rules and publish it in the Federal Register for comment. This will allow the market to suggest changes to the schedule before the CFTC misses the mark. Market participants need to know when they will be expected to implement the rules so that appropriate investment, staffing, and reorganization decisions can be made. Until a final schedule is published, market participants will continue to play a very high-stakes game of pin-the-tail-on-the-donkey. Providing an additional level of transparency is entirely appropriate. We have already conceded we can't meet the deadline set by Congress in the first place, so providing a plan will not keep the CFTC from meeting that date. CFTC-SEC ronndtables The CFTC and Securities and Exchange Commission (SEC) conducted a roundtable discussion on Dodd--Frank implementation in May 2011. From this discussion, I took away three very clear messages that the public was sending the CFTC. First, market participants would like an implementation schedule so they can make investments to comply with the rules. Second, there is nothing the market can't build, integrate, and execute, but the CFTC must provide clear rules and enough time to implement the rules. The panelists made it clear they needed months, not years, to implement these rules. Third, phased implementation of the rules is essential to ensure that all the pieces work together. What was not clear from this discussion, however, was the appropriate phasing. There was not consensus about whether we should start with participants, products, or both nor about how the CFTC will handle the challenges presented by the clearing mandate for standardized over-the-counter (OTC) derivatives. So, we have more work to do on this front. The ball is now in our court. The market has been frank about the challenges and has only asked for schedules, regulatory certainty, and patience. Regulating the swaps markets Still, we are making a good deal of progress in our rulemaking process. In fact, we are exceeding expectations. At the last CFTC open meeting, we finally released the much-anticipated joint proposal with the SEC on definitions of products, including swaps. (1) As you know, the CFTC had previously released proposals addressing the definition of swap execution facilities (SEFs), as well as the definitions of swap dealers and major swap participants. …