By Randy Myers
Approximately a year and a half after passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, federal regulators have yet to hand down final rules on how the swaps market will be regulated.
Dodd-Frank specifies that swaps—a term used broadly to cover just about any type of over-the-counter derivatives contract—must be cleared on an exchange or by a clearinghouse. The Securities & Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are responsible for writing the necessary regulations.
In a presentation to participants at the 2011 SVIA Fall Forum, Anthony Mansfield, a partner with the law firm of Cadwalader, Wickersham & Taft, noted that Dodd-Frank called for a joint SEC-CFTC study group to determine whether stable value contracts meet the definition of a swap. Under the legislation’s language, Cadwalader explained, the contracts would not be treated as swaps unless the study group concludes that they should be, and the SEC and CFTC commissioners then agree. As the study group hasn’t yet completed its work, that means that stable value contracts are not, at least for the moment, swaps.
Mansfield said the SEC has indicated that it will not finalize the results of the study group until regulators issue their final definition of a swap, which also is incomplete.
“There will be a push to get this done, but there won’t be a sense of urgency,” Mansfield said, noting that other aspects of Dodd-Frank are taking priority on the regulatory agenda. Once the study group does issue a recommendation on stable value contracts, he said, it also now appears that regulators will seek public comment before making a final decision on the matter.
Stephen Kolocotronis, vice president and associate general counsel of Fidelity Investments, added that regulators have indicated they may rule that stable value contracts are swaps but then exempt from Dodd-Frank under authority provided in the law specifically for these contracts. Regulators are concerned, he said, that if they simply rule that stable value contracts are not swaps, other financial services firms may try to make the same argument for other products, ultimately circumventing the will of Congress.
SVIA President Gina Mitchell and several of the organization’s members have been meeting with regulators to help them understand stable value products and stable value’s robust regulatory structure under ERISA and its state counterparts, state insurance commissions, the Federal Reserve, and the Office of the Comptroller of the Currency, observed Anthony Camp, vice president of the Stable Value Pooled Products Group at ING U.S.