Dodd-Frank’s regulatory vacuum

Cite this Article
Larry Ribstein, Dodd-Frank’s regulatory vacuum, Truth on the Market (June 07, 2011),

There’s been a lot of talk about the regulatory impact on job-creation.  Add this: the regulatory vacuum resulting from an absence of rules under Dodd-Frank.

A WSJ article notes that

More than 100 new derivatives requirements in the law take effect on July 16, even though regulators have yet to issue final rules in the affected areas. The holdup raises concerns that a large swath of the financial system might be thrown into legal gray areas.

So what will happen? 

  • DF requires most swaps to be traded on an exchange, but regulators haven’t decided the rules that govern all this. 
  • There are no forms, systems and procedures for complying with proposed business-conduct rules for swap dealers.
  • It’s not clear who can be a swap dealer.
  • An exemption for OTC derivatives trading by corporate end users may end on July 16.

Even if regulators issue guidance for the unregulated areas, Rep. Frank Lucas, chairman of the House Agriculture Committee, said “these contracts won’t be protected from the trial bar. This could prove hugely disruptive to businesses.” One lawyer notes that “any company that takes their compliance obligation seriously faces an awful lot of dilemmas as to what do you do to be in compliance with the law when the law is murky at best.”

With the result noted by a corporate treasurer: “Any uncertainty about the future environment is one more hurdle to get over for a company to make a decision to invest and grow their business and ultimately sustain and grow jobs.”