The wheels of government grind slowly

Today I read that the SEC and the CFTC are moving closer to implementing one aspect of the new Dodd-Frank Wall Street Reform and Consumer Protection Act:

The Securities and Exchange Commission today voted unanimously to propose rules defining security-based swap execution facilities (SEFs) and establishing their registration requirements, as well as their duties and core principles.

Dodd-Frank requires security-based swap transactions that are required to be cleared through a clearing agency to be executed on an exchange or on a new trading system called a security-based swap execution facility.

The Dodd-Frank Act further requires security-based SEFs to be registered with the Commission and specifies that such a registered security-based SEF, among other things, must comply with 14 core principles.

The SEC press release calls out the 14 core principles in detail. I'm neither a lawyer nor a banker, but they seem like good solid principles to me.

It's great to see that this is finally occurring, but my it sure takes a long time:

• Today's announcement allows two months for public comment.


• The final rules are not expected to be in effect until July, 2011


• That's a full year after the Dodd-Frank act was signed into law

Moreover, it's nearly 3 years since the collapse of Bear Stearns, and 13 years since the famous collapse of Long-Term Capital Management. By the spring of 2008, even the financial industry itself was calling for regulations such as these:

He also wants new government oversight of the arcane world of credit default swaps, a business with a notional value and risk of $50 trillion. “Everyone is missing the elephant in the room,” he said.

It was the interlocking relationships between thousands of investors and banks over credit default swaps that pushed the Fed to help rescue Bear Stearns. In particular, Mr. Griffin wants the government to require the use of exchanges and clearing houses for credit default swaps and derivatives.

That way, instead of investment banks playing matchmaker between parties, an exchange will do it with strict rules in place, eliminating billions of dollars in exposure and creating more transparency.

“It’s not sexy, but it’s simple, it’s cost forward, its straightforward, and it’s what we should have done after 1998,” referring to the collapse of Long-Term Capital Management, a big hedge fund. He added that it “is a very sad commentary on where we are from a regulatory perspective” that such a move hasn’t happened already.

The world is a complicated place and I understand that these rules and regulations are complex and intricate. I'm pleased that progress is being made, just (slightly) dazed that it takes such an incredibly long time.