Last week the Senate finally agreed to allow S.3217, the “Restoring American Financial Stability Act of 2010,” to be debated openly on the floor of the Senate. Since overcoming that procedural hurdle, progress has been relatively swift and the bill is expected to be passed by the Senate before Memorial Day. Following a pow-wow with the House it’s looking increasingly likely that the President will sign a Financial Reform Bill before summer’s end.
Some details are still left to be debated and some amendments hopefully still to die (I’m referring to the swap-desk spin-off proposal), but thankfully the Hill is soon to be removed from the Street. Unfortunately, we’re only on the first leg of the reform race.
According to Capital Alpha, a DC policy research firm, the bill as it stands today contains more than 60 mandates for new regulations. This means that after the bill is made law the CFTC and the SEC will need to start drafting regulations. All of those details left out of the bill – specifics on capital requirements, which products are standard, etc. – will now need to be written and (endlessly) debated. That means rule proposals, comment letters and continued discussion and lobbying. If we’re past the 7th inning stretch for legislation, we’re still in the 3rd inning for overall financial reform.
This isn’t a cynical view, just a realistic one. Passed legislation will certainly allow major (and minor) market participants to begin reshaping their strategy to fit within the new world, but until specifics are in place regarding capital, substantial net positions and what must be centrally cleared, the industry will remain in regulatory limbo.
Furthermore, actual implementation of many of those new regulations will likely take a year or more, as the market must be given time to make changes and prepare. That puts us squarely into 2012 – the new OTC derivative market will be in full swing right as London lights the Olympic torch.
I’m looking forward to a market rally when the bill is passed as well as a diminished need to watch C-SPAN. Additionally, the regulators are the ones who live and breathe these markets along with the traders and investors, so presumably debate will be considerably more informed than some of the things we’ve heard from the Hill. But we’re still not out of the water in the legislation-regulation-implementation triathlon. Completing the swim is an accomplishment, but finishing the race is what matters.