In a June 10, 2011, statement, the Securities and Exchange Commission said that it was "taking a series of actions in the coming weeks to clarify the requirements that will apply to security-based swap transactions as of July 16—the effective data of the Title VII of the Dodd-Frank Act—and to provide appropriate temporary relief." A number of federal agencies are starting to miss the deadlines provided in Dodd-Frank, given the tight timeline and volume of work set out in the legislation.

“Some delay makes sense; it makes sense for the agencies to get the rules right,” says Erik Gerding, associate professor of law at the University of New Mexico School of Law.

Title VII, “Wall Street Transparency and Accountability,” of Dodd-Frank establishes a framework for regulating over-the-counter (OTC) derivatives. In particular, it gives authority to both the SEC and the Commodity Futures Trading Commission to regulate transactions and participants in the swaps market. At the same time, banking regulators retain authority with respect to banks, as this brief from the law firm Cadwalader outlines. The legislation gives “the Commissions broad and often overlapping powers that they would, in many instances, be required to use jointly, sometimes in conjunction with, or under the direction of, the Bank Regulators,” the brief says. 

In its announcement, the SEC also said that it would provide temporary relief from several of the provisions within Subtitle B of Title VII; this section concerns the regulatory regime for security-based swaps. Defining just what constitutes a security-based swap isn't always straightforward, one legal expert notes. As a result, it isn't yet clear which firms will have to register with the SEC as swaps broker-dealers. Most firms will want to avoid having to register, in order to limit the regulatory oversight they operate within.

The SEC said it also would extend existing temporary rules under the Securities Act, the Exchange Act, and the Trust Indenture Act, as well as the temporary relief from exchange registration. These extensions should facilitate the continued clearing of some credit default swaps, the announcement said.

While allowing the agencies time to develop appropriate regulation, rather than blindly holding to a deadline is a prudent move, “the rulemaking process also operates in a political environment,” Gerding noted. Many interest groups have an incentive to see that the rules developed are fairly weak. They may want to draw out the rulemaking process in an effort to weaken the regulations, he adds. “I hope that this doesn't become open-ended,” he says.