TRADETECH WEST: Dodd-Frank Needs Technical Support
September 12, 2012
Participants in new execution facilities and other venues that try to adhere to new requirements for central clearing of standardized swaps will need help, said an international financial systems expert at TradeTech West Wednesday.
“"There is a huge need for technical support to make these changes efficient,’’ said Hal S. Scott.
Director of the Committee on Capital Markets Regulation and the Program on International Financial Systems at Harvard Law School.
Roughly 60 rules are needed from the Commodity Futures Trading Commission to meet requirements of the Dodd-Frank Act in derivatives trading, Scott said.
The central clearing of standardized contracts will reduce capital needed to back transactions and is intended to reduce the possibility of a chain reaction to the failure of a major counterparty, such as Lehman Brothers.
But, Scott said, when such a failure occurs, there likely will be fear, anywhere, and a “contagion” will spread any way, with participants pulling out until effects are contained.
The biggest issue remains the territorial reach of the Dodd-Frank mandates, which cover any trade in any country with a U.S. counterparty. Other nations have filed objections to that requirement.
In any event, it will take years for efficient swaps markets to develop under the central clearing model, he said.
Rule- making is behind schedule, two years after passage of the act. And court challenges always loom, particularly for rules where no cost-benefit analysis has been completed.
Of 237 deadlines for Dodd-Frank rules that have passed, 145 (61.2%) have been missed, according to the September 1 progress report from Davis Polk Wardell.
But the CFTC has finalized 43 of the 60 rules it must establish, according to the report.