CFTC and SEC could diverge on rules, says Schapiro


Securities and Exchange Commission (SEC) chair Mary Schapiro says Dodd-Frank Act should be adapted to fit markets. She advocates working closely with the CFTC.

Schapiro stresses flexibility in the SEC’s approach to implementing Dodd-Frank. The agency is focused on balancing statutory deadlines with the need to listen to market participants, she says. When it comes to putting the rules into effect, the agency wants to ensure this happens as smoothly as possible.

“It’s going to be very important that we appropriately sequence when rules become effective and that we give the industry adequate time to build the systems necessary to effectively implement the rules,” she insisted.

As a result, the SEC is double-checking the law to ensure it gives the agency flexibility to implement the rules in a logical way. Where it doesn’t, the agency could ask Congress for help, she adds. “We want to do the things first that make sense to be done first, so other initiatives and technology can be built on a sound foundation.”

Under Dodd-Frank, the Financial Stability Oversight Council (FSOC) is expected to designate and provide additional oversight to financial firms that are deemed systemically important. The question of exactly which firms should be designated is “a topic of great discussion among regulators at this point”, says Schapiro.

While she refuses to speculate on which firms could be designated, the list is likely to include non-banks, including some CCPs, she says. “Undoubtedly, the FSOC will end up designating some [CCPs] as systemically important – I don’t know which ones and I don’t know how many. That will help ensure they don’t end up becoming bastions of ever-increasing amounts of risk,” she says.

Another aim of Dodd-Frank is the removal of credit ratings from financial regulation. The SEC has already made work on this, proposing a rule on March 2 meant to remove references to ratings from the regulation of money-market funds. Instead of using ratings to decide which investments are suitable for money-market funds, the rule would require the fund’s board to determine the investment has minimal credit risk. But in contrast with the aim of Dodd-Frank, Schapiro says she doesn’t expect the funds to stop using ratings.

“Our rules propose removing references to ratings in this context, but we don’t prohibit the use of ratings. I fully expect that as part of the board’s determination about the credit quality of a particular instrument, they will still consider ratings,” she says.

The admission points to the difficulty faced by other regulators in removing references to ratings.

A Q&A with Mary Schapiro will be featured in May’s edition of Risk.