The post-Lehman crisis idea that regulators needed to lower systemic risk in the financial industry has developed into a long journey in a somewhat dark tunnel. We all boarded the regulatory train and supported the idea that more transparency is needed in the markets.
But now most financial industry participants hope for an end to the legislative process and a clear indication of how the new rules will impact their business. Market participants sit tight in the coach and wait for the light at the end of the tunnel to help them to reshape parts of the business that would need to comply with the new rules.
Dodd-Frank delays involve further discussions on provisions that actualy matter to reshape the industry. So yes, it’s best to get it right later rather than get it wrong earlier and yes, it drags on for too long but it’s fair to say that the task to achieve is gigantic on both sides of the Atlantic, not to mention initiatives in Asia and elsewhere, regulatory arbitrage concerns, reciprocity issues…
There is a consensus now on the need to merge OTC derivatives clearing and transaction processes into the listed derivatives and futures model. That also implies regulators need to pay a lot of attention to, and spend a lot of time on, details to limit the potential for unintended consequences.
The listed futures model is robust and its infrastructure can probably onboard a large portion of the OTC market with a little bit of tweaking here and there. The tweaks are still being discussed and face challenges both at the legislative level in the U.S. and at the business level where swap market participants’ No. 1 priority may not be to open up this market to true transparency.