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Demystifying Dodd-Frank

A Regulator Calls On His Colleagues For More Transparency

By Gregory Bresiger

Commissioner Scott O'Malia of the Commodity Futures Trading Commission (CFTC) is on a mission. He says the process of writing new over-the-counter derivative contract rules needs more transparency. Over the past year he has repeatedly called for more roundtables and public comment on how rules are written. Why is this important? Because these rules, among other things, will determine which OTC derivative contracts must go through a clearing process and which ones can continue to use the old bilateral, dealer-to-dealer model. 

Yet often O'Malia has been the odd man out at the five-person CFTC. He is warning that the process of translating the mammoth Dodd-Frank Act into hundreds, perhaps thousands, of new rules could take years, while the industry's providers of these contracts are left wondering how they are to comply in the meantime. The commissioner recently participated in a Q&A with CQ&D.



CQ&D: Do the CFTC and Securities and Exchange Commission have an effective process to write the rules the industry is waiting for on OTC derivatives transactions?

Mr. O'Malia: You are leading with a question regarding procedure, which is separate from the issue of content. I've been vocal about my dissatisfaction with the overall rule-making process. My greatest concern has been, and continues to be, the lack of transparency in our rule-making and implementation schedules. Since the winter of 2010, I've repeatedly asked the commission to publish a full, soup-to-nuts schedule on when each of the proposed and final rules are going to be considered by the commission and in what order they will be implemented. I think that will give the market a much better framework in which to determine their legal obligations and to make critical business decisions-including investment of resources-regarding such obligations. The markets and market participants are looking for guidance. Failure to provide such guidance will not only generate market uncertainty, but it may prevent us from effectively enforcing our own regulations. 


CQ&D: This kind of rule implementation that you advocate is the norm?

Mr. O'Malia: I believe that regulators and market participants in this and other jurisdictions agree that rules of this magnitude require thoughtful planning. We need to build our new regulatory structure on a solid foundation. Just last November, Congress, in the commission's annual appropriations bill, directed the commission to develop and publish for public comment a full schedule for implementation and sequencing of all rules and regulations promulgated pursuant to Title VII of the Dodd-Frank Act. We now have to answer to Congress as to whether we are going to adopt a full implementation schedule.


CQ&D: Are there other commissioners who share your concern for more transparency?

Mr. O'Malia: I suspect there are. But I certainly have been the most vocal.


CQ&D: So why aren't they joining you?

Mr. O'Malia: I think that would be a great question for every other commissioner.


CQ&D: Should the rules process go faster or slower?