Implications of Financial Reform Bill

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act" or "Act") was signed into law by U.S. President Barack Obama. The law touches on nearly every facet of the financial sector. Specifically, Title VII of the Dodd-Frank Act, entitled the Wall Street Transparency and Accountability Act of 2010, which establishes a new framework for the regulation of the over-the counter (OTC) derivative contracts aims at improving transparency and accountability in derivative markets.

OTC contracts are usually negotiated between two counterparties, and commodity companies widely use them to manage market risk. Overall, the Act increases the Commodity Futures Trading Commission's (CFTC) regulatory authority over derivatives. However, there is uncertainty over how the CFTC will define its jurisdiction.

The Act also relies on the CFTC to make rulings to clarify and interpret several issues. In addition, there are also several requirements related to market clearing, definitions of market participants, reporting, and capital requirements that raise several issues and concerns for derivatives users.