Financial Reform Bill Passes House
Have you heard? A kerfuffle is brewing in Washington D.C. about theentire financial services industry. On Wednesday, the House passedtheir version of the bill, a legislative behemoth coming in at 2,323pages. Whether pro or con, it's inevitably going to impact investorsof all stripes, so with that in mind, here are a few key points to know.
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The SEC and the CFTC will share responsibility of regulating the over-the-counter markets. Critics are wary a lack of guidance on the division of responsibilities.
It will also create a bureau within the Federal Reserve designed to protectconsumers in the financial marketplace, impose tough regulations oncomplex financial derivatives, establish a council of regulators tomonitor the financial system for major risks and grant shareholders anonbinding vote on executive compensation.
The Volcker Rulecreates a new regulatory framework for derivatives, and means that USbanksí proprietary trading operations ñ which speculate onthe markets with house money will be curbed, and in many instances,stopped altogether.
The rule bans ìthe purchasing or selling ... of any security,derivative, futures contract, option thereon or other security orfinancial instrumentî by banks, with the exception of activitiesrelated to risk management, market making and trading on behalf ofcustomers.
Depending on your perspective, the good news is that it may take up to 12 years for the provisions of the bill to come into effect.
TheStreet.com reports that probably the most feared provision in Dodd-Frank would have forcedbanks to give up the bulk of their derivatives operations. However,many derivatives products were excluded from the mandate, and bankswill still be able to trade others out of affiliated entities."
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