OTC Derivatives Clearing Summit: SEC, Fed promise reform progress

Buy-side frustrations with the post-crisis regulatory landscape were aired at Risk’s OTC Derivatives Clearing Summit in New York, with speakers from both the Federal Reserve and the Securities and Exchange Commission (SEC) promising greater clarity in the coming months.

In a blunt exchange, one audience member – Louis Thorne, chief operating officer at hedge fund Fortress Investment Group – asked how different jurisdictions would work together to expand the scope of clearing-mandated products. The initial answer, from Jeanmarie Davis, senior vice-president for financial market infrastructure at the Federal Reserve Bank of New York, did not go far enough for Thorne. Asked if Davis’ reply was helpful, he said “not really”.

“As a buy-side institution, we would like more visibility in the process,” Thorne added. “Trades that are required to be cleared are 11% of our portfolio, but we could clear 20% if we wanted to. We run a macro book across multiple markets and asset classes, and across the board we feel regulators are not really working together closely enough. We don’t want to have a situation where we have to answer to a master in Asia, another in Europe and another in the US, but I feel like that is where we are heading. In addition to clearing, there is an onslaught of other regulation we are dealing with that I don’t think has been particularly well thought out,” he said.

In response, Davis – and her fellow keynote speaker, Jennifer Marietta-Westberg, deputy chief economist at the SEC – said progress will be made during the remainder of 2013, as individual regulators finalise their take on reforms agreed by the Group of 20 (G-20) nations in 2009.

“Right now, we have uneven progress from each of the regulators that is subject to the G-20 commitments, so in this time period – where some jurisdictions have come out with their approaches and some have not – you are going to have some uncertainties and concerns about where this is all going. We have reason to believe that by the end of this year, many more jurisdictions will come online with their rules to regulate these markets,” said Davis.

Under its new chairman, Mary Jo White – who was confirmed to the post in April – the SEC will be one of the rule-writing bodies that makes progress, vowed Marietta-Westberg. The agency has responsibility for 95 Dodd-Frank Act rules.

“Our new chair, Mary Jo White has stated publically that her number one priority is finishing Dodd-Frank regulations. So, while she has not been with us very long, I think there will be a push to finalise those Title VII rules that have not been adopted yet. The SEC has proposed almost all the Title VII rules and we have adopted a couple of them such as the gateway rules, the dealer definitions and the product definitions, but we are working hard on the others and they are a goal for the next year,” said Marietta-Westberg.

Both regulators made it clear they were voicing personal opinions rather than official policy.

According to analysis by law firm Davis Polk & Wardwell, the SEC had finalised just 34 of the rules it is given by the statuteas of June 3. A further 42 rules have been proposed but not finalised, while 20 rules are yet to be released even in proposed form.

By comparison, the Commodity Futures Trading Commission had finalised 41 of its 60 obligatory rule-makings by the start of June.

 

This article was first published on Risk

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