The biggest question everyone has right now is when? Not what – what is the block trade size; what is a SEF; what products must be cleared – but when will the new rules finally be finished and take effect. Trying to answer that question requires a little experience with financial regulatory reform history, a small connection to Washington and dumb luck.
According to Dodd-Frank, all new regulations called for must be approved by July 15. Of this year. From that point a minimum 60-day implementation period must be given to the industry to prepare for the new rules. That would take us to roughly Sept. 15. So is that when?
I doubt it.
I do believe the Commodity Futures Trading Commission and Securities and Exchange Commission will have their rules in place by July 15. Dodd-Frank was passed faster than we ever imagined and CFTC Chairman Gary Gensler is on such a tear that I just don’t see him allowing the agency to miss the deadline. All the proposed rules will have been announced by Jan. 20, which leaves six months for comment, revision and passage.
Granted, this will not be an easy six months for the CFTC commissioners and staff, financial firm lobbyists and their lawyers, but I believe the next six months will yield the final rules (however imperfect they may be).
So why not Sept. 15? A 60-day implementation time is simply unrealistic. In fact, a 90-day implementation period as was set in the recent CFTC-SEF proposal is also unrealistic.
Just as we don’t want to the regulators to rush the rule writing and risk screwing something up, we don’t want the industry to rush what amounts to a complete overhaul of OTC derivative market structure and risk screwing that up too. For once this isn’t about systemic risk but operational risk.
That being said, the industry leaders I’ve spoken with don’t want this to drag on forever either. Although I believe 12-18 months is probably a more realistic timeframe for implementation, I’d guess that for many of the rules, the industry will be OK with 6-9 months in an effort both to compromise and get on with it already. This puts us into the first quarter of 2012.
The one caveat I’d put on that is implementation will most certainly be phased. A big bang – you must clear and trade all clearable products tomorrow – type roll out is unwise and unlikely. Instead, expect to see a few products at a time, just as the stock exchanges do technology migrations, a few symbols at a time.
So my answer to “when?” is the first quarter 2012. If you don’t agree with me, you have three options:
- Post a comment below
- Come to the TabbFORUM OTC derivatives event in New York on Jan. 25 and ask the industry leaders and regulators yourself.
- All of the above.
I feel as if I’ve already written this several times but…we’re getting there.