SEC Stays Vague on Derivatives Regulation Timeframe

The US Securities Exchange Commission (SEC) has released a document detailing the order in which it desires incoming regulation of the derivatives market to take effect, but has declined to outline precise dates.

The policy statement, which also seeks public comment on the proposed rules, aims to attenuate industry anxiety over a perceived lack of direction on the part of the regulators regarding derivatives reform. As part of the Dodd-Frank Act, some of the major changes proposed under Title VII provisions will include the centralized trading of standardized derivatives contracts through so-called Swap Execution Facilities (SEFs).

"The policy statement seeks to provide a ‘roadmap' to market participants and the public on how we expect to implement the various regulatory requirements for this market," says Mary L Schapiro, chairman at the SEC. "We look forward to public comment on our anticipated sequencing as we continue to adopt and implement the rules under the law."

Missed Deadlines
However, both the SEC and the Commodity Futures Trading Commission (CFTC) have repeatedly missed deadlines for finalizing the specific rules, which were initially meant to be completed last year. In the policy statement, the SEC has declined to name specific dates for finalization, although the CFTC has already set a tentative date of 31 December 2012 for its own rulemaking process.

The foundation of the SEC's delays rest on standardizing definitions for various terms that are crucial to effectively implementing the regulation. These include defining security-based swaps and other areas in a legal context, pursuant to the Dodd-Frank Act as a whole. Other areas that have proved difficult to codify include the extraterritorial applications of Dodd-Frank, for example, regarding how US banks operating overseas will be affected.

Both the SEC and the CFTC have repeatedly missed deadlines for finalizing the specific rules, which were initially meant to be completed last year.

Earlier in the year, both the SEC and CFTC finalized rules which will identify companies as swap dealers. The SEC also stated that it intends for data warehouses, which collect information on the derivatives market, to register with the regulators. Part of the policy statement's objective is to introduce and reinforce the SEC's phased approach to delivering and implementing rules, so as to avoid operational difficulties with overall compliance.