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The 6 Biggest Dodd-Frank Surprises

By Ed Beeson
July 20, 2015, Law360

At 848 pages, it should be no surprise the Dodd-Frank Wall Street Reform and Consumer Protection Act has been a complex, time-consuming and controversial piece of legislation that has tied regulators and the industry in knots. But five years on, the law has produced some unexpected outcomes, from empowering once-sleepy regulators to squeezing small community banks. Here, Law360 looks at some of Dodd-Frank's biggest surprises.

Still Writing Rules

The architects of Dodd-Frank gave regulators a number of orders on turning the law into actual rules. One was to finish writing the rules within a year of the act being signed into law. Few people probably expected the agencies to stick to the deadlines. But what has surprised many is just how long it has taken regulators to get the job done.

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SEC Finds No Evidence of Lost Liquidity in Single-Name CDSs

By Kris Devasabai
July 17, 2015, Risk

A senior staffer at the US Securities and Exchange Commission (SEC) has denied claims that the agency's failure to mandate central clearing of single-name credit default swaps (CDSs) has hurt liquidity in the asset class.

"I am not aware that we have documented a significant and strong downward trend in liquidity [in the absence of] mandatory clearing for more reference entities," said Jennifer Marietta-Westberg, deputy director and deputy chief economist at the SEC. "If we had strong evidence of a decline in liquidity, I think that's something the commission would be concerned about."

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American Is Front-Runner to Head Panel of Global Markets Regulators

By Juliet Samuel
July 16, 2015, The Wall Street Journal

An American is close to replacing the European at the helm of one of the world’s most powerful financial regulatory bodies, as the organization seeks to deepen U.S. involvement in its activities, according to a person familiar with the matter.

Paul Andrews, a vice president at the Washington-based Financial Industry Regulatory Authority, is the front-runner to lead an international committee of markets regulators called the International Organization of Securities Commissions, according to a person familiar with the matter. The current secretary-general of Iosco, David Wright, a British bureaucrat who previously spent 34 years at the European Commission, has championed the idea of international cooperation in regulating the financial sector during his three years at the helm. He will step down from his post at the start of next year.

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Wall Street Awakens to MiFID Research Muddle

By Tim Cave and James Rundle
July 13, 2015, Financial News

Concerns are mounting on Wall Street over the potential spillover effects of new European trading rules, with large broker-dealers worried that SEC laws could prevent them from accepting separate research payments.

Under the review of the Markets in Financial Instruments Directive, EU regulators are proposing to separate research costs from the fees paid by portfolio managers to brokers for executing trades, a process known as “unbundling”.

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New York Fed Says Last Pieces of Repo Reforms May Take Longer Than Expected

By Katy Burne
June 24, 2015, The Wall Street Journal

The Federal Reserve Bank of New York said the two large Fed clearing banks, Bank of New York Mellon Corp. and J.P. Morgan Chase & Co., and other market participants would likely need more time to complete remaining overhauls in a corner of financial markets that contributed to the 2007-2009 crisis.

The New York Fed said in a statement that the two clearing banks have made progress in reducing the amount of intraday credit they are extending to dealer banks to below a self-imposed target, a sign of approval from the central bank about work completed in the reforms.

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Regulators Group Admits Funds Aren’t Like Banks

By Juliet Samuel
June 17, 2015, The Wall Street Journal

Global regulators have admitted they were wrong to pursue a new approach to overseeing large funds, handing a major lobbying victory to many of the biggest money managers in the U.S., including Fidelity Investments and BlackRock Inc.

Large funds aren’t like banks and don’t pose a systemic threat to the financial system when they collapse, Greg Medcraft, the chairman IOSCO, the world’s biggest committee of markets regulators, said on Wednesday in London.

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Regulators Spending Less but Charging More

By Vipal Monga
June 15, 2015, The Wall Street Journal

Financial services regulators in the United States, and the U.K. spent less money on enforcement last year but raked in more money from penalties, according to a report.

“A small number of massive fines” pushed the numbers up, according to Kinetic Partners, noting that multi-billion-dollar punishments doled out to global banks for manipulating the foreign exchange currency markets  and fixing the benchmark London Interbank Offered Rate boosted the overall figures.

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Deutsche Bank to Pay $55 Million to Settle Derivatives Inquiry

By Matthew Goldstein
May 26, 2015, The New York Times

Deutsche Bank “overstated” the value of a multibillion-dollar portfolio of sophisticated derivatives during the height of the financial crisis, leading it to file inaccurate financial statements for at least a six-month stretch, securities regulators in the United States said on Tuesday.

The bank, without admitting or denying wrongdoing, agreed to pay a $55 million penalty to the Securities and Exchange Commission to settle claims that its “inadequate internal accounting controls” violated federal securities law.

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Regulators Point to Risks From Rapid-Fire Trading, Clearing

By Ryan Tracy
May 19, 2015, The Wall Street Journal

The rise of computerized trading and the changing roles of big banks are reshaping financial markets and potentially raising new vulnerabilities, U.S. regulators said in their annual report on financial-system threats.

The Financial Stability Oversight Council—a group of senior officials including the heads of the Federal Reserve and the Securities and Exchange Commission—also pointed to emerging risks from clearinghouses, a group of middlemen firms that have become a crucial part of market infrastructure.

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SEC Faces Cross-Border Criticism

By Mike Kentz
May 9, 2015, IFR

Buyside firms are criticising the SEC for diverging from the CFTC on a recent proposal that allows credit derivatives traded between two US banks to stay outside the scope of Dodd-Frank trading requirements if they are booked through overseas affiliates – even when the traders themselves are based in the US.

Grievances surrounding regulatory divergence are becoming a common refrain from market participants hungry for harmonisation – but supporters say this is one area where the two agencies may have to diverge.

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