July 21, 2010
The bill the President has just signed is historic and heroic and will serve as a tremendous benefit to markets and our economy. It gives us the transparency, tools and teeth we need to better regulate the markets we already oversee and to bring light to the more than $600 trillion over-the-counter (OTC) markets which are currently unregulated. I applaud the Congress and the President for getting this important job done.
While the bill is now law, the real work on its implementation begins. The rules that will be promulgated during the next several months are numerous and necessary. CFTC alone faces the daunting task of developing dozens of rulemakings within the next year. It’s a daunting task alright, but it will get done.
The unregulated OTC derivatives market and especially “swaps” were a major component of the financial meltdown we experienced two years ago and are still living with today. Bringing those trades out of the dark will go a long way toward keeping us out of another financial mess. Transparency will make these markets more efficient and that’s important for consumers who rely on them to determine the price of almost everything they buy – from a gallon of gas to a gallon of milk or orange juice, to the interest rate on a home mortgage or car loan.
Many key items will be decided in the near future: how do we actually oversee and regulate the OTC markets? How do we implement position limits? And how are we going to use some of these new professional grade regulatory tools to police these markets? For example, CFTC has had only one successful manipulation prosecution in 35 years. The law was broken but the bill gives us new authority to go after disruptive trading practices. Whether it be rulemaking regarding position limits or the definition of a swap dealer, public input via comments and open public meetings will be critical to the process.
So, this is a wide-ranging bill with many facets, hundreds where regulators still need to put some more meat on the bones. How we do that and when we do that are questions that will really tell if this legislation meets the expectations of its supporters. I believe it will.
Last Updated: July 21, 2010