SEC’s Piwowar champions collaborative swaps approach

Republican commissioner Michael Piwowar of the Securities and Exchange Commission has called for greater cohesion among international regulators as the top US securities regulator prepares to unveil final swaps rules.

Republican commissioner Michael Piwowar of the Securities and Exchange Commission (SEC) has called for greater cohesion among international regulators as the top US securities regulator prepares to unveil final swaps rules.

Piwowar said the SEC would, in the coming months, release its final rule within Dodd-Frank’s Title VII that will cover securities-based OTC derivatives, taking into account industry comment on proposed rule issued last May.

Piwowar criticised fellow US regulator the Commodity Futures Trading Commission (CFTC) – which has developed the bulk of Dodd-Frank Act swaps reforms – for its inability to quell extraterritorial concerns within the ‘Path Forward’ agreement with European regulators and policymakers and for pushing through interpretive guidance instead of final rules.

“This interpretive guidance did not contain clear rules, and was not based on any economic analysis,” Piwowar said. “It is therefore not surprising that the guidance received widespread condemnation by foreign regulators.”

Market participants, through a group of trade bodies, have mounted a legal challenge to this guidance, causing potential implementation delays.

“While the CFTC’s guidance is currently tied up in the courts for an indeterminate period of time, I can envision the SEC’s methodical approach to these issues bearing fruit in the form of a robust final rule in the coming months,” he said.

The SEC’s final rule will cover securities-based swaps including single name credit default swaps and single name equity derivatives, some of which will be traded on swap execution facilities.

Alex McDonald, CEO of the Wholesale Markets Brokers’ Association, said Piwowar’s comments showed the SEC was more inclined to engage with regulators from other countries and bodies such as the International Organization of Securities Commissions. He said the Commission’s slower Dodd-Frank development process compared to the CFTC would not likely lead to differences in final rule implementation.

“Despite the SEC taking nearly two years longer than the CFTC to formulate its Title VII rules, the consequence of serial ‘no action’ deferrals will be that both sets will move into the implementation stage at roughly the same time,” he said.

McDonald added that after a period of intense regulatory activity from the CFTC, the top US derivatives regulator would compose future regulation in a similar fashion to the SEC, and spend a greater amount of time consulting regulators in other countries. He said changes to the CFTC’s leadership, in addition to widespread staffing changes, would also propel this shift.

“From this point onward, I think the CFTC’s approach to rule making will be more coordinated with both those of the SEC and those in the EU,” he said.

McDonald said that Piwowar, as a Republican commissioner, had taken a stance similar to that of CFTC commissioner Scott O’Malia, who has repeatedly criticised the CFTC for rushing out rules without addressing important issues, such as packaged swaps within mandatory SEF trading requirements.

Fragmentation issue

The initial Group of 20 derivatives reforms agreed upon in 2009 in the wake of the global financial crisis have since splintered as individual countries seek to implement jurisdiction-based rules. This has led to the US, and in particular the CFTC, being seen as a global swaps regulator, and to a fragmentation of rules governing the global OTC derivatives market.

“Banks are not just dealing with regulatory fragmentation across each of their products, participants, infrastructures and jurisdictions,” McDonald said. “They are also dealing with increased capital and liquidity requirements within the Basel III framework plus the higher fixed costs of remuneration, which collectively makes it harder to support product inventories and make markets, which could lead to serious long-term impacts.”

Although some participants have struggled to meet compliance deadlines for post-crisis reforms, the market has adapted well, suggests Anshuman Jaswal, senior analyst with consultancy Celent.

“The SEC’s final rule on securities-based swaps will be the next major compliance issue for many market participants adjusting to Dodd-Frank swaps rules,” Jaswal told “There have been advantages to the SEC’s more measured approach that has given participants more time to deal with rules from the CFTC, but the longer timeline has also caused some uncertainty within the market,” he said.

Despite this, Jaswal believes the industry has reacted positively to Dodd-Frank reforms through active dialogue with regulators.

“Overall, the market has shown it can adapt to this wide-ranging type of regulation within Dodd-Frank and particularly with the clearing and trading requirements and this is a positive sign,” Jaswal said.