Streetwise Professor

CFTC Commissioner Bart Chilton never struck me as the Claude Rains type, but he recently did a good Capitaine Reynaud imitation:

“The number of people that have come in requesting to be exempt from the law, or to have the law delayed has literally shocked me,” said Bart Chilton, 50, a Democrat who has served as one the agency’s five commissioners since 2007. “A lot of folks are having problems coming to grips with the fact that they do have a new law, and will have to change their business models.”

. . . .

“The volume and intensity of the lobbying is unprecedented in my experience at the agency,” Chilton said. “They all have an ask. The types of loopholes that people are suggesting exist are either non-existent or very farfetched.”

Neither Chilton nor anybody else should be even mildly surprised, let alone shocked.  The requirements of Frank-n-Dodd are so extensive, and so intrusive, that they will impose substantial costs on derivatives market participants.  Said participants have every incentive to try to influence the rules.  And the time is now.  What’s more, they have every incentive to try any argument that might work.  What’s to lose?

The pace and intensity of the lobbying will no doubt ease after the rule making process winds up next summer.  But no matter how carefully-crafted the rules (hah!), they will not anticipate all contingencies, and will have ambiguities and contradictions.  Moreover, market participants will take unanticipated actions that will raise issues about interpretation of the rules.  Hence, for years to come market participants will continue to try to affect the agency, ask for interpretations or no comment letters, or do things that lead to an agency reaction and market participant counter-reaction.  The CFTC will also find it necessary to issue policy statements to clarify the inevitable confusions.  There will be litigation arising from the legislation and regulations that will result in decisions and findings that lead to yet more changes.

In no time, there will be a thicket of decisions and interpretations that will in turn raise new issues.  And the market will continue to adapt and innovate and evolve, both in response to the regulations and technology and market shocks.  These adaptations and evolutions will present further challenges to the regulations and the regulators.

All this will generate more lobbying and lawyering.

When this happens nobody–nob0dy–should express the slightest shock.  Unless, that is, they relish the role of laughingstock.