Derivatives Reform Overview

In an effort to better regulate derivatives trading, legislative bodies in the U.S. and Europe have implemented a series of financial reform initiatives to achieve three key objectives for the OTC derivatives markets:

  • Increased transparency
  • Improved market efficiency
  • Reduced systemic risk

In the U.S., the bulk of these reform initiatives were embedded in the Dodd-Frank Act and implemented primarily by the Commodity Futures Trading Commission (CFTC), working in conjunction with the Securities Exchange Commission (SEC). In Europe, the regulatory landscape is a bit more fragmented as the majority of derivatives reforms are addressed in the Markets in Financial Instruments Directive (MiFID) and European Market Infrastructure Regulation (EMIR).

Most major derivatives reform deadlines have been met in the U.S., but the process of rule implementation and enforcement is still unfolding in Europe. However, starting on February 12, 2014 all European-based entities trading derivatives including IRS, CDS and equity derivatives were required to begin reporting their transactions to a trade repository under EMIR.

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Key Bills

In the U.S., the primary piece of financial reform is:The Dodd-Frank Wall Street Reform and Consumer Protection Act.

In Europe, the primary pieces of legislation are the Markets in Financial Instruments Directive (MiFID) and European Market Infrastructure Regulation (EMIR).

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Regulatory Bodies

Although many organizations, including political bodies as well as financial institutions, are involved in shaping the reforms to come, the primary players include the following:


The Securities and Exchange Commission (SEC)

  • Regulates the securities industry (stocks, bonds and security-based derivatives) and enforces its laws.
  • Oversees the key participants in the securities world, including exchanges, brokers, dealers, investment advisors and mutual funds.
  • Primary overseer and regulator of the U.S. securities markets, whose chairman serves as a member of the President’s Working Group on Financial Markets.

The Commodity Futures Trading Commission (CFTC)

  • Responsible for regulating the commodity futures and options markets in the U.S. This includes ensuring transparency in the markets and overseeing trade execution and clearing facilities.

The House Committee on Financial Services

  • Oversees the entire financial services industry, including securities.
  • Oversees the Fed and the treasury.

Federal Reserve

  • Not directly involved in derivatives regulation.
  • Regulates the bank reserve ratio, which affects the amount banks have to invest in securities as a whole.


The Financial Conduct Authority

  • Authorises, regulates and supervises more than 50,000 financial services firms, and regulates the prudential standards of those firms not covered by the Prudential Regulation Authority


The European Commission

  • Each country has one national financial regulatory agency that regulates the local market.
  • European Union regulations have binding legal force throughout every Member State, on a par with national laws. 
  • Directives are addressed to national authorities, who must then take action to make them part of national law.
  • Regulations are passed either jointly by the EU Council and European Parliament, or by the Commission alone.

European Securities and Markets Authority

  • An independent institution that contributes to the supervision of the European Union’s financial system.
  • ESMA is responsible for building a single rule book for EU financial markets and ensuring its consistent application and supervision across the EU.


  • Regulates and supervises the financial services industry in Japan

Hong Kong

Securities and Futures Commission
  • Regulates the securities and futures markets in Hong Kong and works to ensure orderly market operations.


Monetary Authority of Singapore
  • Singapore’s central bank, and an integrated supervisor overseeing all financial institutions in Singapore - -- banks, insurers, capital market intermediaries, financial advisors, and the stock exchange.

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