Wednesday, November 23, 2016

Trump Administration likely to modify, not eliminate, futures and derivatives reforms

By Brad Rosen, J.D.

The election of Donald Trump as the next President of the United States, combined with the Republican Party maintaining control of both houses of Congress, will likely lead to significant changes in the regulatory landscape for futures and derivatives industry participants. Nonetheless, many of the initiatives or proposals brought about as part of the Dodd-Frank reforms following the financial crisis of 2008 will likely survive, albeit in some modified form. This is according to Dawn Stump, a longtime government and public affairs specialist, who shared her views in a recent FIA webinar on the Trump transition and its impact on the financial services industry.

The first order of business, according to Stump, will be the selection, nomination, and confirmation of the key players to run the major financial regulatory bodies such as Treasury, the CFTC, and the SEC. Given the Republican domination over Congress, they will most likely have little difficulty bringing their chosen people on board.

SEC Commissioner Mary Jo White, a Democratic appointment, has already announced her intention to step down. On the CFTC side, the term for Chairman Timothy Massad, also a Democratic appointment, runs through April 2017, although it is quite possible he may step aside earlier in deference to the new Trump administration. Many believe that Commissioner John Giancarlo, a Republican, will assume the CFTC Chairmanship. It’s also worth noting that two Democratic nominees are currently awaiting congressional approval for open CFTC commissioner spots. Stump indicated that it is not clear how that will all shake out, although she expects at that there will be at least two commissioners with Democratic affiliations at the end of the day.

Regulatory impact. As for the impact on the regulatory landscape itself, Stump does not expect there will be a wholesale repeal of the Dodd-Frank legislation notwithstanding proclamations to the contrary by candidate Donald Trump prior to the election. In particular, Stump observed that Title VII of Dodd-Frank, also known as the Wall Street Transparency and Accountability Act, “will not be repealed.”

However, Stump pointed to a number of areas where she sees the possibility for less regulatory oversight and rigor. These include a less intrusive version of Regulation AT where the CFTC will not be able to obtain source code from traders absent a subpoena, fewer limitations on the use of derivatives by SEC regulated mutual funds, a rejection of the proposed DOL fiduciary rule, revisiting customer arbitration provision under the Consumer Financial Protection Board auspices, and reconsidering rules for tightening up position limits.

Trump promises. While President-elect Trump has promised to eliminate two regulations for every new regulation enacted, Stump indicated she is not sure how that will work in the context of futures and derivative regulations. Still, the changes in Washington and the White House promise to make for interesting and challenging times for both regulators and the regulated alike in the years to come.