President Obama this week issued an executive order that would, in his words, “[make] it our mission to root out regulations that conflict, that are not worth the cost, or that are just plain dumb.” He observed that “regulations do have costs” and that “we have to make tough decisions about whether those costs are necessary.” As we have now for months been engaged in the regulatory rulemaking process, we have a keen appreciation for this Presidential initiative. At the same time, however, we note that the President’s executive order has no force or effect on independent agencies such as the CFTC, SEC and Federal Reserve, who are hard at work writing hundreds of pages of rules delegated to them by Congress as part of financial legislation.


Despite the limited reach of the order, we appreciate its sentiments and are hopeful that they will be taken into account by these agencies. Notably, the order directs federal agencies to “do more to account for – and reduce – the burdens regulations may place on small businesses.” Derivatives legislation explicitly grants authority to the CFTC to do just that. The CFTC has the authority to exempt small banks from the clearing and trading requirements that were principally designed for swap dealers and other major market players. Additionally, limited aspects of Dodd-Frank fall under the domain of the order. The Treasury Department has been granted authority to exempt foreign currency forward contracts from the salient requirements of the law. Chatham joined the Coalition for Derivatives End-Users in asking them to do just that late last year in a letter.


With both the small bank exemption and the FX forward exemption, regulators have the ability to limit the costs thousands of businesses will bear due to Dodd-Frank, while not at all diminishing its worthy effort to contain systemic risk and increase transparency in the derivatives market.