Large dealers and asset managers expressed concerns about Dodd Frank's 'big bang' approach to reforming swaps markets, noting that the rulemaking was rigid and the time frame was unrealistic.
"We need to think of the rules as having sufficient flexibility to give the market participants using the products today a reason to continue using them," said Lee Olesky, CEO of Tradeweb, who spoke at TabbForum's derivatives reform conference in New York City last week.
Conveying that the multiple moving parts to the swaps overhaul, Lee Olesky, said the first critical reform is flexibility and the second is synchronicity. Citing the roles played by depositories, swap execution facilities (SEFs) to clearing firms, Olesky said, "Everyone has a role to perform. That's why there is a need for synchronicity."
Participants on the panel said they were engaged with the SEC and CFTC. "It's somewhat of a shotgun marriage," commented Jamie Cawley, CEO of Javelin Capital Markets. With the deadline for implementing the Dodd-Frank derivatives rules looming in July, Cawley said, "There is a lot of work to be done."
Market confidence was a topic that participants brought up as if the uncertainty over the final regs could damage that. "This is a monumental change. The idea of a healthy and vibrant market is only going to be obvious when you are in the market after," commented Brad Levy, managing director in the Principal Strategic Investments Group at Goldman Sachs. But Levy added, "There is a logical way to roll these rules out and impose them on the market."
While focusing on preserving liquidity in the swaps markets, participants seemed to forget why the radical reforms were being imposed on the swaps industry. Javelin's Cawley reminded the panel why this was happening. "On a macro-level, the reason we're all here is because of September 2008… to make sure the systemic risk that exists as a byproduct of the market is addressed. Replacing bilateral contracts with clearing agreements," was central to the reforms, he suggested.