To Clear or Not to Clear How SEC Implementation of Dodd-Frank Undermines Title VII’s Mandatory Clearing Requirement

Abstract

In 2010, the United States Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act to prevent a recurrence of the 2008 financial collapse. Since its passage, the Act’s many reforms have reshaped the financial markets, but faulty executive implementation has undermined some of these components. One such issue arose in the United States Securities and Exchange Commission’s interpretation of Dodd-Frank’s Title VII central clearing mandate, which Congress included to stabilize and bring transparency to the over-the-counter derivatives market. The SEC has not yet effected mandatory clearing of security-based swaps—the financial products which Dodd-Frank subjected to the agency’s jurisdiction—but the SEC’s publicly contemplated approach omits “commission-initiated review,” a core component of Title VII’s structure. Without this type of review, many security-based swaps will remain outside the scope of mandatory central clearing, causing the SEC to fall short of its statutory mandate and Congress’ intent. This Note urges the SEC and lawmakers to take the necessary steps to address the “commission-initiated review” missing link and ensure the regulatory regime successfully includes the entire scope of financial products subject to the SEC’s jurisdiction.