It was a good week for the Dodd-Frank Act. Over the weekend the most sweeping financial regulations celebrated its third birthday and earlier this week, the CFTC used rules in the regs to fine a high-frequency trading firm a respectable $3.1 million for market manipulation.
So, Dodd-Frank is working, right?
We’re not sure. The law may be entering its fourth year in action but no one seems happy with the Act except for the consultants and the compliance IT vendors who want to get in on the action. Or should we say confusion? There are still large portions of the law that are unclear, giant loopholes abound concerning derivatives trading and most galling of all, no one has gone to jail for the actions that lead to the meltdown of 2008.
In a scathing op-ed on Dodd-Frank's anniversary, former US Senator Ted Kaufman highlighted what is wrong with the financial regulatory law that was supposed to cure the markets.
He writes: "Failure was built into Dodd-Frank from the beginning. Instead of writing laws that addressed the abuses that led to the crisis, it nearly always kicked the can down to agencies, instructing them to write new regulations. By and large, those regulatory agencies have been overwhelmed by a combination of congressional underfunding and a massive lobbying effort by the megabanks that increasingly seem to control Washington. The Davis Polk law firm's latest count says that only 155 of the 398 rule makings required by Dodd-Frank have been finalized."
Strong stuff. In the meantime, banks say that DF is the law of the land and they’re in compliance, but they are doing whatever they can behind the scenes to stop Dodd-Frank cold. If they cannot make the law null and void they are trying to file down its teeth to reduce its bite.
According to Think Progress, the heads of banks have attended more Dodd Frank meetings than reform groups by a margin of 14 to 1.
Reporter Alan Pike writes that "Regulators charged with finalizing Dodd-Frank's rules met with financial firms 2,118 times since June 2010, compared to 153 meetings for reform groups."
These financial firms constitute a Who’s Who - or a Rogue's Gallery - of global banking: Goldman Sachs, JPMorgan Chase, Morgan Stanley, Bank of America, and Citigroup. According to findings from the Sunshine Foundation, Goldman Sachs lead the list with 222 meetings and JPMorgan came in second place with 207 meetings.
This is hardly surprising. For an industry that is doing very well - nearly every bank and investment firm posted massive profits this quarter - they claim that the laws are too vague and exact and that being in compliance is too costly. In fact, if you ask about the credit crisis of 2008, this is ancient history to the traders on Wall Street who made it happen. Why harsh the long gestating recovery with reminders of bad behavior from the past?
On the plus side, there is good news. Along with the ban on trading the CFTC and other regulatory bodies placed on HFT firm Panther Energy Trading, there might be more money for the men and women who oversee the markets. Yesterday Congress voted for increased funding for Dodd-Frank surveillance and it passed along a party line votes.
It's not perfect but Dodd-Frank is here to stay.
Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio