A new report from Aite Group claims the Dodd-Frank Wall Street Reform and Consumer Protection Act (aka FinReg) fails to address a number of key issues in the OTC derivatives space.
Key among them are a lack of clarity over definitions and terms; jurisdictional confusion resulting from oversight divided between the SEC and CFTC; connectivity issues for trading firms dealing with various types of swaps; and probable increases in trading costs and necessary IT investments.
With respect to the trading, clearing, and reporting of OTC derivatives, uncertainty reigns where FinReg treads, says John Jay, senior analyst with Aite Group and co-author of this report. Despite the legislations pursuit of minimizing systemic risk through increased transparency requirements, market structure, legal and operational issues are no more clear today than when the Dodd-Frank Act passed in July 2010.
Paul Zubulake, senior analyst with Aite Group and co-author of this report, contends the Dodd-Frank Act will have a far-reaching and substantial impact on the OTC derivatives marketplace. The sole saving grace is that market participants expect regulators to allow implementation of rules governing the trading, clearing and reporting of OTC derivatives to occur over time, he says.
The full report is available to Aite Group members on the organization’s Web site.
Rowena Romulo, head of direct custody and clearing at J.P. Morgan, recently outlined concerns about mandatory OTC derivatives clearing in the wake of the Dodd-Frank Act in an interview on GCTV. “Overall the introduction to CCPs is a positive step,” Romulo said in the interview. “But there is a flipside to everything. To watch the full video interview, click here.
(CG)