Tuesday, March 8, 2011

Dodd-Frank & cleaner credit default swaps

OK, I confess eighty-percent bogglement by this Federal Register item:
Ownership Limitations and Governance Requirements for Security-Based Swap Clearing Agencies, Security-Based Swap Execution Facilities, and National Securities Exchanges With Respect to Security-Based Swaps Under Regulation MC
The parts I get are, it's a cleaner-trading rule under the Dodd-Frank Act and the main idea is to discourage conflicts of interest among the clearing agency middlemen so that, next time around, they might be moved to restrain the kinds of credit default swaps that, as the FCIC Report puts it, "fueled the mortgage securitization pipeline" in the recent boom-and-bust. I think this means the clearing agency people can still be bookies, just bookies who run a clean and reasonably open game with minimum expectations of kneecappage. Also, the notice is opening up extra public comment time on a proposed rule first posted in October 2010, and what the SEC would like to hear from us, the people, before April 29, 2011 are
"...further insights regarding what mechanisms, if any, may be necessary or appropriate to mitigate conflicts of interest and how the proposed requirements in the three proposals should be evaluated. Commenters should provide specific reasons and information to support their views and recommendations, including an analysis of why a recommendation would satisfy the statutory mandate contained in Section 765 of the Dodd-Frank Act regarding mitigation of conflicts of interest. The Commission asks that commenters, when possible, provide the Commission with empirical data to support their views."
This is the SEC's seriously fairly helpful press release.

And because this is America, anybody can send in comments. Says in the October posting to use the SEC's comment form here and refer to File Number S7-27-10.

P.S. Amazing sci-fi language in that release about a call to "immobilize and dematerialize stock certificates." I mean, yes, book entry is practically way more convenient, especially because stock certificates are a kind of thing that older people tend to lose, but is "dematerialize" the best way of phrasing that?

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