Author: Tony Scianna, deputy head of strategy, SunGard
We’ve talked a lot on this blog about the new rules and requirements that will soon affect the financial industry as a whole. After catching up with John Omahen, vice president of our post-trade derivatives solutions, who recently attended talks with regulators in Washington, D.C., it is clear that there is still a lot of work to do.
I asked John some questions about his participation in a joint CFTC-SEC roundtable discussion on May 2. Take a look at the Q&A below to see what John had to say. Do you have your own Dodd-Frank implementation questions?
Tony Scianna: What was the focus of your roundtable discussion?
John Omahen: I joined several other representatives from the industry to discuss how phasing the rule implementation might affect connectivity and infrastructure for the market. It was clear in the discussions that U.S. regulators have a difficult task ahead of them as they attempt to implement reforms quickly without disrupting the market or creating opportunities for “regulatory arbitrage.”
Tony: I am sure “the question of when” played a role in the discussions, then. Did you gain any clarity regarding how long the CFTC would allow for implementation of the rules once they are written?
John: The panel was asked to comment on the length of time needed but there were some disagreements as to what a “reasonable time frame” was for different reforms. However, most on the panel agreed that when it came to implementing changes, the real challenge would not be establishing connections to SEFs, swap data repositories, clearinghouses and the like, but changing business processes to support the new regulatory structure. This is where it gets much more complicated.
Tony: Speaking of things getting complicated, your panel came together to discuss sequencing with regard to rule implementation. Can you share what the panel recommended?
John: We discussed the possible phasing of rules in a few different ways: by asset class (credit swaps first, interest rate swaps next, etc.), by market participant (swap dealers first, with end-users last), or by function (clearing first, and then trading). The panelists agreed that a phased implementation was a good idea, but cautioned against creating a disadvantage for some market participants over others.
Tony: Was there a general consensus within the panel on any of the possible implementation sequences?
John: The panel did agree that the clearing side of the equation seems to be the most defined at this point, and it could be a good candidate to push to the head of the regulatory sequence. We all also agreed that specifying even some of the rules could make the rest of the implementation easier. With fewer unknowns, more planning and resourcing could be taking place.
Tony: What else did you take away from the roundtable discussions?
John: Many industry insiders will tell you privately that the CFTC was already underfunded, even before Dodd-Frank was passed. Now that the CFTC is tasked with regulating the much larger OTC derivatives markets, that issue has become even more acute. As if that weren’t difficult enough, with cost-cutting such a high priority in Washington, increasing staff levels to cover this gap will be a big challenge for the CFTC. At the end of the day, someone has to pay for all this regulatory reform. There is uncertainty around how this cost will be shared between the CFTC and the industry; determining the right balance between the two could end up being the greatest challenge of all.
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