ANALYSIS: The Evolution of Credit Default Swaps and Efforts to Regulate Them: What Will Be the Impact of JP Morgan Chase’s Recent $2 Billion Trading Loss?
“Every swap transaction is unique, like a snowflake, and you can’t make snowflakes with a cookie cutter like the Commodity Exchange Act […] While many believe that the CFTC’s actions may cause a financial crisis, no one believes that CFTC action is needed to solve one.” A representative of J.P. Morgan Securities, Inc. made this statement in 1998 when Congress assessed the CFTC’s first efforts to regulate the over-the-counter (OTC) derivatives markets. 1 Derivatives, including credit default swaps (CDS)—the instrument that caused JPMorgan Chase’s recent $2 billion (and mounting 2 ) trading loss—remained unfamiliar to the general public and unregulated for the decade that followed.
The Consumer Financial Protection Bureau (CFPB) has moved ahead with a final rule on the protection of privileged information submitted by banks and other financial institutions during the supervisory process, despite industry concerns about its effectiveness.
The Commodity Futures Trading Commission June 29 voted unanimously to propose interpretive guidance regarding how its rules for over-the-counter derivatives would apply to non-U.S. entities and activities outside the United States.
The Commodity Futures Trading Commission has opened an investigation into “credit derivatives products as traded by the chief investment officer” of J.P. Morgan, (JPM) agency chairman Gary Gensler told reporters May 21.
CFTC Proposes That Foreign Regulators Need Not Indemnify Swap Data Repositories Under Dodd-Frank Act
The Commodity Futures Trading Commission voted 5-0 May 1 to propose an interpretative statement that in many cases would exempt foreign regulators from having to indemnify swap data repositories when seeking information from the entities, as required in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
In a long-awaited vote, the Securities and Exchange Commission April 18 unanimously adopted final definitions for security-based “swap dealers” and “major swap participants”—entities that will be subject to registration, capital, margin, and business conduct requirements in the new regime.
The Financial Stability Oversight Council (FSOC) April 3 released a final rule along with interpretive guidance on how it will decide whether certain investment funds, insurance firms, and other nonbank financial companies should be deemed threats to U.S. financial stability and regulated like banks.
Senior officials from the Securities and Exchange Commission March 6 hinted that the commission could overhaul its portion of a joint proposal with federal banking regulators to implement the Volcker rule.
The Federal Reserve Board likely will not meet a July deadline to finalize rules that limit proprietary trading, but a two-year transition period should give banks enough time to comply with the new standards, Fed Chairman Ben S. Bernanke said in testimony before Congress.
The Dodd-Frank Wall Street Reform and Consumer Protection Act calls for rules by July to implement the Volcker rule restrictions, but that looks doubtful, Bernanke said in Feb. 29 testimony before the House Financial Services Committee.
The Federal Reserve Board Dec. 20 asked for comment by March 31 on a tougher set of regulatory standards for financial firms critical to the well-being of the financial system, leaving some specific items, such as a special risk-based surcharge, to be addressed in follow-up proposals…