Reading MAD Magazine as a kid, I was often confused as to what the meaning of Alfred E. Neuman’s signature catch-phrase – “What, me worry?” -- actually meant. As I tried to put it into some context, based on each new MAD magazine cover, I had constructed a meaning that I was quite sure was correct – that “I don’t need to worry about anything….especially things that I don’t understand.”
It turns out that Alfred, in spite of his good looks, is much like everyone else and his repeated reflections on this catch-phrase were meant as a way to affirm to himself that everything is or will be ok. This is very much the same affirmation that Capital Markets firms have been looking for related to the Dodd Frank Wall Street Reform and Consumer Protection Act, as they try to gain an understanding of the new regulations and their potential impacts on the market, as well as on their own business. I have spent much of my time over the last 18 months discussing the regulatory rule reform and the requirements that are now being drawn up with regulators, compliance officers and financial market’s customers.
The Dodd Frank act is over 2,300 pages in length and asks federal regulators to create more than 400 new Federal regulations. When all the rules are finally written, you will be looking at well over 10,000 pages of “What me, worry?”
Buried within these 10,000 pages is one of the primary goals of Dodd Frank: to provide full market transparency. Ironically, the act itself seems to be unfolding in a manner that has been made opaque and byzantine for customers that are trying to understand it; the reasons for this are many: too many new rules, too many regulatory agencies, too much pressure on legislators, regulators and the Capital Markets, themselves --and most importantly, too much uncertainty as to how a theoretical regulatory paradigm shift may impact the markets vs. the empirical evidence related to the historic approach to free markets.
Some of the rules related to Swaps and the OTC derivative markets have just now started to get some clarity to them. In particular, the rules related to trade communication archiving will mandate firms to “maintain daily trading records Swaps” and “maintain all recorded trade communications, including electronic mail, instant messages, and recordings of telephone calls.” These rules are just now receiving some further definition, including a requirement that these daily trading records for swaps must be identifiable by “complete audit trail for conducting comprehensive and accurate trade reconstructions.” Additionally, all of the trade communication archiving and records “must be kept throughout the existence of a Swap, and for five years after termination or expiration of the Swap.”
Ok, so maybe clarity is not such a wonderful thing. Maybe, it was better when we had no understanding of the rules and remained blissfully unaware under the guise of “What me, worry?”