The SEC unveiled a plan last week to phase in new rules governing OTC swaps.
It has been reported that the plan was delayed in part due to the complexity of the rules. Moreover, the financial industry pushed back to slow the process mostly because it will need time to develop internal controls to adhere to the rules.
In sum, the SEC’s policy statement establishes a timeline for creating new oversight of $700 trillion market and one of the requirements is that OTC derivatives be traded through regulated exchanges. These exchanges have been nicknamed as “swap executions facilities” and certain financial firms already have a lead role in creating them (Morgan Stanley, Goldman Sachs and others).
These exchanges could also be profitable ventures because market participants will be required to register with these facilities. The requirements include: registration fees, renewal fees, and transaction fees. The rules also require establishing clearinghouses that will act as a “backstop” in the event one trading party in a particular deal defaults. Doing so also requires the need to fund them.
In any case, SEC’s statement gives Wall Street a timeline for establishing and implementing the new rules. The statement focuses on a sequence of compliance dates for several crucial rules as well as the scope of the clearing requirement, the extent the rules will apply overseas, and the definitions underpinning much of the overhaul. The plan is open to public comment for 60 days.
