Slow Down or Speed Up?: Dodd-Frank, CFTC, SEC After Election

Now that Obama has won re-election, it remains to be seen whether the Commodity and Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) will slow down or speed up their implementation of financial regulation stemming from the Dodd-Frank Act.

Ironically, Obama’s election may cause the SEC and CFTC to slow the pace of regulation. Both agencies have already been slow to implement regulatory reforms—the SEC being the slower of the two—but now that the prospect of a Romney election is no longer driving regulators, reform may slow down as a result.

Slowed reform will almost certainly recharge claims that both agencies cause confusion, especially over swaps reform, where the CFTC in particular has been the target of critics and international regulators alike. If they agencies take their time issuing rules and guidance, the lag between proposal and implementation will increasingly irk market players and foreign regulators.

The prospect of a Romney election would have meant a “streamlining” of the Dodd-Frank regulatory framework. In real terms, this probably would have involved some stripping of the Volcker Rule, new regulatory chairs at the SEC and CFTC, and less robust interpretations of Dodd-Frank mandates.

The re-election of Obama does not help the CFTC in one problem area: position limits. After losing a first-round court battle on position limits in October, the CFTC must now go back to the drawing board to determine whether it will appeal the ruling, which requires the CFTC to do more to prove that position limits are cost-effective and necessary, or to rewrite the rule from scratch.

Another irony of Obama’s election is that charges of confusion and uncertainty (see above) against the CFTC may actually be accompanied by an increase in trading volume. Brokerages have hinted that, regardless of who’s elected, individual investment is likely to increase now that the election is over.

Same Dodd-Frank, but New CFTC, SEC Chairs?

It remains to be whether Gary Gensler, the chairman of the CFTC, and Mary L. Schapiro, the head of the SEC, will stay beyond their current terms. In another irony, both might be replaced. Certainly Gensler has critics on the left and the right. Senator Bernie Sanders vigorously challenged his initial appointment, and he has lately come under attack by House Republicans for his pursuit of position limits regulation. The Republicans accused him of wielding “ideology” and being “wasteful.”

As for Shapiro: her term is finished in 2014. The Wall Street Journal suggests that she may be replaced by chairman and CEO of Chicago Board Options Exchange (CBOE Holdings), William Brodsky. Brodsky is a longtime friend of Joe Biden, and he fits the schematic of the “futurization” of swaps (seen as “Chicago-style”) already favored by the administration.

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