The Enduring Legacy of the Dodd-Frank Act’s Derivatives Reforms

Despite the shortcomings of the Dodd-Frank Act, this article argues that the two parts most relevant to derivatives—Titles VII and VIII—are likely to endure. Title VII, which covers the trading of derivatives, especially swaps, generally strikes the right balance between preserving the vibrancy of the US derivatives markets and mitigating risk to market participants and the US financial system. While Title VII’s consolidation of much of the credit risk management function in central counterparties (CCPs) itself poses a systemic risk, this article contends nonetheless that Title VII addresses this risk by giving the Commodity Futures Trading Commission (CFTC) the power to mitigate it through regulations that implement the ‘core principles’ applicable to CCPs. This oversight is complemented by Title VIII, which provides enhanced supervision of systemically important CCPs. The Dodd-Frank Act’s approach to derivatives will endure, it is argued, so long as policymakers understand the interrelationship between Titles VII and VIII. This article focuses on that relationship and closes with a brief discussion of some of the work the CFTC is undertaking to bring finality to the statutory framework created by Titles VII and VIII.