In January 2017, the Obama Administration will transfer power to the incoming Trump Administration, and Congress will convene with a Republican majority in both houses. Predictions abound as to what legislative and regulatory changes will transpire under the new administration. Earlier this month, WSJ Pro hosted a live video event to discuss how the election will impact financial regulation. Financial Regulation Editor Jacob Schlesinger moderated the discussion with two Washington financial-policy analysts: Brian Gardner of Keefe, Bruyette & Woods, and Ian Katz of Capital Alpha Partners. Both analysts expect aggressive deregulation of the financial sector according to the President-Elect’s promises during the campaign. Among the many topics covered, Gardner and Katz emphasized (i) potential changes to the Dodd-Frank Act, (ii) personnel changes at various agencies, including the Securities and Exchange Commission (SEC), and (iii) a more lenient approach to enforcement.
President-Elect Trump campaigned on a promise to get rid of the Dodd-Frank Act. Enacted in the wake of the 2008 recession, Dodd-Frank sought to limit the risks that banks can take and provided for consumer protection through the creation of the Consumer Financial Protection Bureau (CFPB). However Gardner and Katz agree that wholesale repeal of Dodd-Frank is unlikely, partly because Republicans will have a slim majority in the Senate and, thus, may lack the sixty votes needed to end a filibuster. If Senate Democrats unite in their opposition to repeal, they can prevent a vote altogether. Gardner and Katz think it more likely that the administration will modify Dodd-Frank at the margins.
Katz expects targeted efforts in that regard. For example, he predicts that the CFPB will be weakened, but not abolished. The new administration can weaken the Bureau by replacing its current single director with a Republican appointee, or by changing its structure to that of a commission with no more than three of five commissioners from either party. Given the President-Elect’s populist message, efforts to abolish the CFPB would be politically risky: the Bureau was established to protect consumers.
The administration could also target CFPB regulations. Gardner notes that promulgated rules will likely survive, but non-final rules may be withdrawn and rewritten. For example, in June 2016, CFPB proposed new restrictions on payday lending, but they have not yet been finalized. If the proposed rules are still pending in January 2017, the new administration may scrap them in favor of less onerous restrictions.
In addition to these modifications related to Dodd-Frank, Gardner and Katz discussed personnel changes at various agencies, including the Securities Exchange Commission (SEC). Although President-Elect Trump campaigned on a promise to “drain the swamp,” leaks from his transition team suggest he will rely to a great extent on veterans of past Republican administrations. Heading the efforts for independent regulators like the SEC, the Commodity Futures Trading Commission (CFTC), and the Federal Reserve is Paul Atkins, an ex-SEC Commissioner who disfavors regulation. Atkins almost certainly is looking for potential appointees who share his view. Gardner does not anticipate major shifts in the regulatory environment but, as Katz notes, individuals appointed to lead these agencies will set the tone and influence each agency’s enforcement priorities. Codified rules likely will remain, but agencies faced with close questions or grey areas of the law will probably resolve them in favor of industry.
All that said, President-Elect Trump’s candidacy did not unfold as many predicted. It will be interesting to see whether and how these expected changes to financial regulation materialize under the new administration.
Some affiliate marketers have recently gotten involved in the risky world of online trading. Online trading, particularly the trading of binary options, has become an attractive alternative for some affiliate marketers to traditional forms of online marketing.
However, those companies that do get involved in this market must be aware of the presence of the U.S. Commodity Futures Trading Commission (CFTC), which regulates these markets.
Simply put, binary options means “two options.” The system offers traders a simple choice whether an asset will close above a certain price (a “call option”) or below (a “put option”) at the end of the day. Lately, there seems to be a great deal of confusion regarding the legality of binary options trading in the United States.
The question is not so much whether binary options are legal in the United States but whether the firms offering them are listed on a proper U.S. exchange and are properly registered with and regulated by the Commodity Futures Trading Commission (CFTC). Nadex, for example, is a regulated U.S. exchange, which is designated by the CFTC and permitted to accept U.S. residents as members.
In a recent lawsuit, the CFTC charged the Ireland-based “Intrade The Prediction Market Limited” and “Trade Exchange Network Limited” with offering commodity option contracts to U.S. customers for trading, including option contracts on whether certain U.S. economic numbers or the prices of gold and currencies would reach a certain level by a certain future date, all in violation of the CFTC’s ban on off-exchange options trading.
For now, it seems that regulators like the CFTC have focused their attention on the actual firms offering these trading options. However, the CFTC has been sending cease and desist letters to affiliates in this space as well. Affiliates working in such risky markets must know the firms for which they are working. Some online trading firms may say they do not accept U.S. customers, but saying it is very different than actually representing and warranting that fact in a contractual document with their affiliates and indemnifying affiliates from liability.
For further information, see my article in the April 2013 issue of FeedFront, a magazine for affiliate marketers.
The Commodity Futures Trading Commission (CFTC) is apparently going to appeal a U.S. district judge’s ruling that had overturned its decision to impose limits on the number of contracts that commodity traders can hold.
The CFTC had found that under the recently passed Dodd-Frank law, which amended the Commodity Exchange Act of 1936, it now need not make a finding of “necessity” before it puts forth a rule to impose these position limits. It had ruled, in fact, that it was mandated by Congress to set limits and that it had no discretion to choose not to impose such limits.
The swaps and derivatives industries, however, challenged the CFTC’s interpretation in U.S. District Court for the District of Columbia. The industries contended that even under the Dodd-Frank amendments, the agency must find that it is “necessary and appropriate” to set position limits. In other words, for each given commodity, it would need to show that there was a risk of dangerous speculation.
On September 28, U.S. District Judge Robert Wilkins rejected the CFTC’s position. He sent the rule back to the CFTC for further consideration, just two weeks before the limits were set to take effect. He said that Dodd-Frank did not give the agency a “clear and unambiguous mandate” to set position limits without showing they were necessary in each instance.
The law, wrote Judge Wilkins, requires “that the Court remand the rule to the agency so that it can fill in the gaps and resolve the ambiguities.”
One would think that the agency would accept this direction from the judge and come up with an interpretation of the Dodd-Frank law that would indeed fill in gaps and resolve ambiguities. That is what an agency is supposed to do.
Now, however, according to Reuters and other reports in early November, there appears to be a CFTC majority – three of the five commissioners — in favor of appealing Judge Wilkins’ decision to the U.S. Court of Appeals for the D.C. Circuit.
It seems odd to us, at the very least, that the agency is insisting on an interpretation of the Dodd-Frank law that strips it of all discretion and requires it to set position limits for dozens of commodities without a finding that the limits are going to be helpful to police the markets and limit excessive speculation. Especially now that a judge has ruled that Congress didn’t unambiguously decide to tie the agency’s hands, why pursue this appeal?