Expectations Under The Trading Industry’s New Regulatory Regime

Uncategorized / by: Derek Haworth / February 11,2021

The regulation of our financial markets is always a topic of heated debate around presidential elections and inaugurations, especially as political regimes change. And of course, the events in equity markets at the end of January both renewed and catalyzed fervent calls for regulatory reform.

As Democrats leverage control over both the executive and legislative branches to enact their agendas and pursue their campaign promises, generalized expectations are for greater oversight. Republican appointees, traditionally viewed as deregulatory in spirit, are vacating their chairs at the Securities and Exchange Commission, and Commodity Futures Trading Commission to make way for Biden’s picks, promoting an orderly transition of power and allowing Biden’s team to implement their preferred policies. At BornTec, how these issues impact our clients remains top-of-mind. We’ve spent considerable time building flexible solutions and we always keep an eye on the future to seamlessly adapt to new situations.

So, does the trading industry know what it’s getting out of two new leaders at the SEC and CFTC?

The SEC remains the clearer of the two: Gary Gensler, Biden’s choice to run the SEC, is well-known to the trading industry after running Obama’s CFTC from 2009-2014. Notable for his push for more oversight on derivatives trading, as well as the pursuit of the legal case regarding LIBOR manipulation, he can be viewed as embodying a more fervent regulatory spirit. While some uncertainties have arisen after recent controversy that struck equity and options markets, a consensus seems to have formed in prognosticating his time as chair.

The CFTC, an agency focused entirely on the derivatives industry, has a bit more clouded future. Reuters recently reported that Chris Brummer is expected to be nominated to replace Heath Tarbert, Trump’s most recent CFTC chair. But, beyond recent academic work in the crypto space, his presumptive policy targets and ideals are much less defined.

To determine the changes that can be expected in relation to the previous CFTC, we took a look at Tarbert’s term as chair. Possibly against the traditional expectations of a Republican appointee, under Tarbert’s leadership the CFTC dealt out a record number of enforcement actions in 2020. The CFTC website lists 77 documents detailing regulatory actions announced or implemented in 2020 and 35 in 2019; in 2018 and 2017 there were 13 and 10, respectively. Furthermore, Tarbert claimed nearly 90% of the final rules he enacted were bipartisan in nature, and nearly 80% were unanimously voted upon by the agency’s bipartisan group of commissioners.

Although some of these rules resolved issues created by COVID-19, the apparent bipartisan nature of his tenure, and the volume of decisions, imply a not-so-drastic change at the CFTC once a new chair is confirmed. The focus of a potential Brummer chairmanship may shift in a yet-to-be-determined fashion — but in terms of overall enforcement action, the trading industry may not experience the difference in regulatory oversight from the CFTC that the financial industry in general is foreseeing from the SEC.

What are your thoughts and expectations with a new regulatory regime? Leave us a comment on our latest LinkedIn post, and for more information on how you can use BornTec’s data hub functionality to meet new regulatory requirements, reach out to us at sales@borntec.com