Regulators issue more than 2,000 pages of Dodd-Frank rules

“While the rules finalized today have some important reforms, they were also needlessly weakened in key areas,” said Dennis Kelleher, president and chief executive of the pro-reform nonprofit Better Markets, in a statement.

“This is how Wall Street is defeating financial reform,” Kelleher said. “Not by a frontal assault. Not in one big attack … but by consistently and methodically getting strong rules weakened bit-by-bit, often behind closed doors.”

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The final rules aim to make transaction information for the “dark trades” widely available and transfer those deals onto open-market exchanges or databases.

“The moment we are at as a Commission and pretty important and transformative,” CFTC Commissioner Mark Wetjen said during Thursday’s hearing.

One of the criticisms of the changes in the rules, however, is the decrease in how many price quotes a swap dealer would have to request before entering into a swap contract.

The financial sector had lobbied hard against the initial CFTC proposal, which said five bids had to be submitted before entering into a contract, which would purportedly shed more light on the complex, off-the-grid transactions.

In the final rule, that number has been reduced to two, and eventually three, bids, according to The New York Times.

The rules “shift information transparency from the dealers to the public,” said CFTC Chairman Gary Gensler. “It’s a very significant shift toward market transparency away from the status quo.”

Pro-regulation groups — and members of the commission — have disagreed, calling the rules a step back toward the opaque trading environment that contributed to the financial crisis.

“I’ve never been such a reluctant, reticent regulator as I am today with these rules,” Commissioner Bart Chilton said at the meeting.

Thursday’s vote is the 29th meeting by the CFTC to consider Dodd-Frank rules, which remain largely unfinished three years after the legislation became law. The final rule has not been published yet, but it was sent to the Federal Register following the vote.

The CFTC knows it has to tread lightly around the financial services industry, which has responded to the agency’s previous swap regulations with lawsuits.

In the most recent case, Bloomberg LP sued regulators over rules governing collateral standards for swap transactions, saying the CFTC did not adequately consider the costs and benefits of the regulations, but “offered only a fleeting, bare-bones discussion of economic effects that contained no financial or quantitative estimates,” according to the complaint filed with the court. 

Following Thursday’s actions, however, Bloomberg said it supported the CFTC’s work.

“Bloomberg is pleased the Commodity Futures Trading Commission (CFTC) has come to agreement on the final swap execution facility rules. We fully support the central goals of Dodd-Frank to further increase market transparency,” said Gregory Babyak, the head of government affairs for Bloomberg L.P., in a statement.

The Securities Industry and Financial Markets Association (SIFMA) sent a letter before the vote to the CFTC saying it supported Bloomberg’s lawsuit and urged the regulator to change the higher-liquidity requirements.

SIFMA, a powerful lobbying group for banks and traders, asked the CFTC “to take prompt action to provide relief” from the rule, which specifically requires non-commodity swaps to go through a more lengthy clearing process than both futures and commodity swaps.

In an email, the group called the regulations “flawed” and said they would “put our financial markets in jeopardy.” 

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