Dodd Frank clarity: distinguishing the two goals


The Dodd Frank legislation has two aims: one short term and one long term.

The short-term goal is to help the Democrats win more seats in the mid-term elections. That’s why the legislation was rushed through so fast, and why bits of it were left so vague, particularly the definition of a SEF and its scope. The immediate objective was to make the Democrats look tough on banks and appear to be reforming the markets.

The long-term goal is to reduce systemic risk in the derivatives markets and to provide more transparency and accountability to the buy side. That part is now being hammered out at length between the  CFTC, the banks, and an army of lobbyists. And it’s subject to what the GOP might do after the elections if – as is likely – it wins control of the House and even the Senate.

The point is that many of the provisions of the Act were cobbled together hastily to hit the deadline for goal one. These are now being debated, re-interpreted, massaged, and maybe even rewritten by the time we get to goal two.

We have almost daily conversations with banks about this, and there are almost daily swings in sentiment as the CFTC trickles out news of its deliberations.

Currently the CFTC’s mood is perceived as strongly anti-bank. This may start to change after the election.

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