JPMorgan Chase & Co. (JPM), UBS AG (ADR) (UBS): Why Not To Give In Here

What the new regulations would really do
The whole purpose of the regulation is to keep an eye on global swap activity that affects the U.S. This has been a hole in the U.S. regulatory framework, and has led to a shortfall in the implementation of the Dodd-Frank Act. Under the new law, swap traders would register as such once they hit a predetermined limit on trading. That limit would be determined by the value of swap trades made with “U.S. Persons,” a definition that includes U.S.-based corporations and their overseas subsidiaries.

Once registered, the overseas locations would have to abide by Title VII of the Dodd-Frank Act. That section imposes certain internal restrictions on transactions, dictates capital requirements, and increases the amount of disclosure that a bank has to have when it trades. The goal is to keep the system from falling into the minefield of risk that it resembled in 2008.

Banks are upset for two reasons. First, it’s a lot of paperwork, and that means more costs. But they’re going to have to suck it up. Second, it makes it harder to screw over the person you’re trading with. The transparency requirements require daily mark-to-market value updates on uncleared positions, which exposes the weaknesses of traders and their positions. That’s information the foreign traders have been able to keep to themselves, and that has helped them make more from the uninformed.

Wall Street has to learn that making money is never an excuse for endangering the basic fabric of the market. The new CFTC regulations go a long way toward making that point loud and clear. Congress is already under pressure from banks and lobbyists to weaken the Dodd-Frank Act — and it’s not even up and running yet. Throwing more loopholes into the regulation of American companies operating overseas would only add unnecessary risk to the economy. Everyone should be against that.

The article Why We Shouldn’t Give in to Wall Street originally appeared on Fool.com and is written by Andrew Marder.

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