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Entries tagged “Dodd-Frank”

Repercussions of the S&P U.S. Credit Rating Downgrade for OTC Market Participants

Insight Robin Powers Robin Powers · August 11, 2011

On August 5, Standard & Poor’s (S&P) announced that it downgraded the United States to a AA+ rating from its longstanding AAA status. The immediate effects of S&P's downgrade are likely to be modest, largely because it was expected and at least partly discounted in advance. But for participants in the derivatives markets, the downgrade is another source of potential stress on top of the unknowns under Dodd-Frank.

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Dodd-Frank: Highlights & Implications

Insight Robin Powers Robin Powers · August 02, 2011

When Dodd-Frank was signed into law on July 21, 2010, it was the just the beginning of a very long process.  The Act came in at over 2,000 pages, but left the majority of the work - roughly 400 rules or studies - to 30 different federal agencies. Only 49 of the mandated rules have been finalized, and the deadline has passed for finalizing another 131.  An additional 200 rules have deadlines approaching. On Tuesday, the Commodity Futures Trading Commission (CFTC) unanimously approved three new derivatives rules, bringing the number of final rules it is required to implement under Dodd-Frank law to 10, out of over 50 proposed rules assigned to that agency.

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Dodd-Frank 30 Day Countdown: Dodd-Frank is here

Insight Robin Powers Robin Powers · July 16, 2011

July 16 has Arrived…

And the world hasn’t ended.

More importantly, the financial sector hasn’t gone into a state of meltdown.  While we will continue to watch as rules are debated, agency heads speak before Congress, and press releases are circulated, it is important to note that the implications of Dodd-Frank’s July 16 deadline had a stronger bark than bite.

Despite all of the headlines that the SEC and CFTC have generated as a result of their delays, it is comforting to know that these agencies are not hastily creating rules solely to adhere to the July 16 deadline.  While they still have a large workload ahead of them drafting rules dictated by the Act, they appear to be working at a swifter pace then what is typically seen by most government agencies. 

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Dodd-Frank 30 Day Countdown: Day 1

Insight Robin Powers Robin Powers · July 15, 2011

Japan’s Financial Instruments and Exchange Law (FIEL)

Japan’s corollary to Title VII of Dodd-Frank is the Financial Instruments and Exchange Law (FIEL), which went into effect in 2008.  While the laws are similar, they are by no means identical. The Japanese law remains silent on topics that Dodd-Frank addresses thoroughly. Most notable among these topics are provisions regarding derivative clearing organizations (DCO’s) and clearing counterparties (CCP’s). Whereas Dodd-Frank provides a framework for how DCO’s and CCP’s must be organized, maintained, funded, and accounted for, FIEL does not give any specific guidance on CCP business continuity, outsourcing, or price transparency. Dodd-Frank imposes across-the-board capital requirements intended to minimize risk in the event of a major default and ensure the business’ functionality for at least a year. In contrast, FIEL’s minimum capital requirement for CCP’s is on a case-by-case basis. Dodd-Frank also implements collateral requirements with the purpose of reducing risk to non-defaulting members in the event that a major member becomes insolvent or defaults.

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Dodd-Frank 30 Day Countdown: Day 2

Insight Robin Powers Robin Powers · July 14, 2011

Swaps Experts Say Market Will Grow; Others Differ in Opinion

As the swaps market braces for Dodd-Frank impact, firms and investors differ on the anticipated changes in the newly regulated market.

Citigroup, Inc. recently released a white paper predicting that interest rate and credit default swaps will grow more than 10% by 2013 as trading risk will decrease and price transparency will increase under Dodd-Frank. Citigroup also stated that Clearinghouse increased requirements for margin will likely cause market participants to avoid marginally profitable investments. They estimate that 60% of OTC derivatives market by volume will soon be centrally cleared.

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Dodd-Frank 30 Day Countdown: Day 3

Insight Robin Powers Robin Powers · July 13, 2011

ISDA Calls for Coordination Amongst Global Regulators

The International Swaps and Derivatives Association (ISDA) recently announced their position that Global regulators need to first coordinate new rules for trade repositories before drafting more complex derivatives rules. The ISDA feels that G20 agreed upon reforms must be enacted prior to other rules so that there is consistency amongst market participants.


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Dodd-Frank 30 Day Countdown: Day 4

Insight Robin Powers Robin Powers · July 12, 2011

CFTC Increases Policing Power under Dodd-Frank

The Commodity Futures Trading Commission (CFTC) has finalized a set of five “anti-manipulation” rules with respect to Title VII of Dodd-Frank requirements. 

The CFTC voted unanimously to expand the government’s ability to police potential fraud and insider trading with respect to derivatives. The CFTC established that a regulator need only show that a trader acted recklessly, as opposed to the previous standard of proving that the trader intentionally manipulated the market and created artificial prices. Scott O’Malia, CFTC Commissioner, stated that this anti-manipulation rule may confuse market participants until the agency is able to clarify how it will be used.   It still remains to be seen how the CFTC will prosecute these instances of fraud and manipulation, but CFTC Chairman Gensler said this rule, “closes a significant gap as it will broaden the types of cases we will pursue and improve the chance of prevailing over wrongdoers.”

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Dodd-Frank 30 Day Countdown: Day 5

Insight Robin Powers Robin Powers · July 11, 2011

Banks Ask for Margin Relief

The largest U.S. banks via a joint letter on June 29, 2011 asked the Commodities Futures Trade Commission (CFTC) to remove the requirement that overseas swap transactions be subject to margin requirements, regardless of whether the swap counterparty is an affiliate of a U.S. organization. This follows on the coattails of a letter written by seven large foreign financial firms in January who asked that their margin requirements be based on their home country regulation.

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Dodd-Frank 30 Day Countdown: Day 6

Insight Robin Powers Robin Powers · July 10, 2011

NYSE sees Growth in Derivatives in June

Uncertainty reigns in the derivatives market as regulators on either side of the Atlantic debate upcoming risk managements regulations, but this has hardly slowed the growth of the industry.


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Dodd-Frank 30 Day Countdown: Day 7

Insight Robin Powers Robin Powers · July 09, 2011

Britain and EU Differ over Derivatives Reform Rules

Last Monday, July 4, the EU announced that it won’t be prepared to make any decisions regarding derivatives regulation before September.

The European Market Infrastructure Regulation (EMIR) has hit a road block as a result of the inability of the European states to reach compromise on which types of derivatives should be cleared. The U.K. is in favor of a law requiring that all derivatives be cleared to mirror the requirements imposed by Dodd-Frank, while other EU states, and specifically the EU Parliament, have opined that legislation should only include off-exchange derivatives. 

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