Dodd-Frank Act – Title VII: Wall Street Transparency and Accountability
This title is also known as the Wall Street Transparency and Accountability Act of 2010.
Regulation of Over-the-counter Swaps Markets
The title states that a review be conducted. The Securities and Exchange Commission shall consult and coordinate to the extent possible with the Commodity Futures Trading Commission and the prudential regulators for the purposes of assuring regulatory consistency and comparability, to the extent possible.
Mixed Swaps —The Commodity Futures Trading Commission and the Securities and Exchange Commission, after consultation with the Board of Governors, shall jointly prescribe such regulations regarding swaps.
Securities and Exchange Commission, National Securities Associations or certain Futures Associations unless specifically provided, are conferred with jurisdiction to issue a rule, regulation, or order providing for oversight or regulation of swaps or with regard to its activities or functions concerning:
- swap dealers
- major swap participants
- swap data repositories
- persons associated with a swap dealer or major swap participant
- eligible contract participants with respect to swaps
- swap execution facilities with respect to swaps.
The Commodity Futures Trading Commission and the Securities and Exchange Commission, in consultation with the Board of Governors, shall jointly adopt such other rules regarding such definitions as the Commodity Futures Trading Commission and the Securities and Exchange Commission determine are necessary and appropriate, in the public interest, and for the protection of investors.
Financial Stability Oversight Council
If the Commodity Futures Trading Commission and the Securities and Exchange Commission fail to jointly prescribe rules the Financial Stability Oversight Council shall resolve the dispute
- within a reasonable time after receiving the request
- after consideration of relevant information provided by each Commission and
- by agreeing with 1 of the Commissions regarding the entirety of the matter or by determining a compromise position.
Any interpretation of, or guidance by either Commission regarding, a provision of this title,
shall be effective only if issued jointly by the Commodity Futures Trading Commission and the Securities and Exchange Commission, after consultation with the Board of Governors. Prohibition against federal government bailouts of swaps entities.
Notwithstanding any other provision of law (including regulations), no Federal assistance
may be provided to any swaps entity with respect to any swap, security-based swap, or other activity of the swaps entity.
The term ‘‘Federal assistance’’ means the use of any advances from any Federal Reserve
credit facility or discount window that is not part of a program or facility with broad-based eligibility under section 13(3)(A) of the Federal Reserve Act, Federal Deposit Insurance Corporation insurance or guarantees for the purpose of:
- making any loan to, or purchasing any stock, equity interest, or debt obligation of, any swaps entity
- purchasing the assets of any swaps entity
- guaranteeing any loan or debt issuance of any
- swaps entity or
- entering into any assistance arrangement (including tax breaks), loss sharing, or profit sharing with any swaps entity.
Prohibition on unregulated combination of swaps entities and banking.
At no time following adoption of the rules may a bank or bank holding company be permitted
to be or become a swap entity unless it conducts its swap or security-based swap activity in compliance with such minimum standards set by its prudential regulator as are reasonably calculated to permit the swaps entity to conduct its swap or security based swap activities in a safe and sound manner and mitigate systemic risk.
The title instructs the following studies be undertaken.
Study on effects of position limits on trading on Exchanges in the United States
The Commodity Futures Trading Commission, will conduct a study of the effects (if any) of the position limits imposed pursuant to the other provisions of this title on excessive speculation
and on the movement of transactions from exchanges in the United States to trading venues outside the United States. A report of the study will be made to the Congress.
In addition to the study required in paragraph (1), the Chairman of the Commodity Futures
Trading Commission shall prepare and submit to the Congress biennial reports on:
- the growth or decline of the derivatives markets in the United States and abroad, which shall include assessments of the causes of any such growth or decline
- the effectiveness of regulatory regimes in managing systemic risk
- a comparison of the costs of compliance at the time of the report for market participants subject to regulation by the United States with the costs of compliance in December 2008
- for the market participants
- the quality of the available data
Study on feasibility of requiring use of standardized Algorithmic descriptions for financial derivatives
The Securities and Exchange Commission and the Commodity Futures Trading Commission shall conduct a joint study of the feasibility of requiring the derivatives industry to adopt standardized computer-readable algorithmic descriptions which may be used to describe complex and standardized financial derivatives.
The algorithmic descriptions defined in the study shall be designed to facilitate computerized analysis of individual derivative contracts and to calculate net exposures to complex derivatives.
The algorithmic descriptions shall be optimized for simultaneous use by:
(a) commercial users and traders of derivatives;
(b) derivative clearing houses, exchanges and electronic trading platforms;
(c) trade repositories and regulator investigations of market activities; and
(d) systemic risk regulators.
The study will also examine the extent to which the algorithmic description, together with standardized and extensible legal definitions, may serve as the binding legal definition of derivative contracts. The study will examine the logistics of possible implementations of standardized algorithmic descriptions for derivatives contracts. The study will be limited to electronic formats for exchange of derivative contract descriptions and will not contemplate disclosure of proprietary valuation models.
In conducting the study, the Securities and Exchange Commission and the Commodity
Futures Trading Commission shall coordinate the study with international financial institutions.
A report of the same will be submitted within 8 months after the date of the enactment of this Act, the Securities and Exchange Commission and the Commodity Futures Trading Commission shall jointly submit to the Committees on Agriculture and on Financial Services of the House of Representatives and the Committees on Agriculture, Nutrition, and Forestry and on Banking, Housing, and Urban Affairs of the Senate a written report.
International swap regulation
The Commodity Futures Trading Commission and the Securities and Exchange Commission will jointly conduct a study on:
- swap regulation in the United States, Asia, and Europe
- clearing house and clearing agency regulation in the United States, Asia, and Europe
- that identifies areas of regulation that are similar in the United States, Asia and Europe and other areas of regulation that could be harmonized
A report that includes a description of the results of the study including:
- identification of the major exchanges and their regulator in each geographic area for the trading of swaps and security-based swaps including a listing of the major contracts and their trading volumes and notional values as well as identification of the major swap dealers participating in such markets;
- identification of the major clearing houses and clearing agencies and their regulator in each geographic area for the clearing of swaps and security-based swaps, including a listing of the major contracts and the clearing volumes and notional values as well as identification of the major clearing members of such clearing houses and clearing agencies in such markets
- a description of the comparative methods of clearing swaps in the United States, Asia, and Europe
- a description of the various systems used for establishing margin on individual swaps, security-based swaps, and swap portfolios.
Stable value contracts.
The Securities and Exchange Commission and the Commodity Futures Trading Commission shall, jointly, conduct a study to determine whether stable value contracts fall within the definition of a swap. This report will be done in joint consultation with the Department of Labor, the Department of the Treasury, and the State entities that regulate the issuers of stable value contracts. The Commissions will determine if stable value contracts fall within the definition of a swap. They will assess if an exemption for stable value contracts from the definition of swap is appropriate and in the public interest. The joint consultation, information sharing and regulation by these groups is aimed at making the swaps market transparent and safe.