Corporate & Securities Law

By Jim Hamilton

Peterson-Frank Exchange Reveals that Securities and Derivatives Exchanges Are Not Subject to Systemic Risk Regulation

Title I of the House Wall Street Reform and Consumer Protection Act, HR 4173, creates a systemic risk oversight and regulatory structure that enables regulators to raise capital requirements and impose heightened prudential standards on large, interconnected firms that could pose a threat to financial stability. The legislation also empowers the Federal Reserve Board to impose a host of additional requirements on institutions and activities deemed systemically important.

A colloquy on the House floor between Agriculture Committee Chair Peterson and Financial Services Committee Chair Frank indiates that this new regulatory structure for systemic risk is not intended to replace or duplicate the regulation of securities or derivative exchanges that are already subject to regulations by the SEC or the CFTC. In looking at the statutory criteria for determining whether a financial company should be subjected to stricter prudential standards, it is hard to visualize the application of these criteria to derivatives and securities exchanges. Exchanges are not the players who perform the trading, but the administrators of the marketplace where such trading occurs.

Thus, while derivatives and security exchanges would technically qualify for the definition of a financial company in Title I, the intent of the legislation is targeted more at the players in the marketplace as opposed to the administration of the marketplace. (Peterson-Frank colloquy, Cong. Record, Dec. 9, 2009, H14425).

Full post as published by Jim Hamilton's World of Securities Regulation on December 27, 2009 (boomark / email).