Joanne Medero on Derivatives Regulation After Dodd-Frank

November 25, 2013

On Tuesday, November 5, 2013, Joanne Medero, Managing Director of Blackrock, Inc., provided an impressive and informative presentation on the very technical area of "Derivatives Regulation After Dodd-Frank" to FWSF Members and guests. Joanne summarized the basics, followed by a short history of derivatives jurisdiction (shared regulatory oversight between the Securities and Exchange Commission ("SEC") regarding "security-based swaps" and the Commodity Futures Trading Commission ("CFTC") regulating all other swaps (energy and agricultural swaps). Joanne explained that historically, derivatives/swaps have been traded over the counter in bi-lateral contracts between counterparties with customized terms and counterparty risk; or on an exchange in standardized contracts, intermediated by a clearing house, with mandatory initial and variation margin requirements to minimize counterparty risk.

Joanne described how Dodd-Frank has maintained the split regulatory jurisdiction of derivatives/swaps with the SEC and CFTC, but has required that all derivatives/swaps: (i) be cleared through a central clearing party or "designated clearing organization," and (ii) be "made available to trade" on exchanges (designated contract markets or swap execution facilities). To that end, Congress has delegated numerous rule-making responsibilities to the SEC and CFTC regarding the registration and governance of the derivatives/swaps dealers, clearing organizations, and other regulatory matters, to reduce systemic risk and enhance transparency. Joanne confirmed that the CFTC has completed nearly all of its required rulemakings, but the SEC has not finalized its clearing or trading rules. 

We extend our sincere appreciation to Joanne Medero for a stimulating and enlightening conversation regarding this important financial tool, and to Union Bank for hosting this special event.