They are supposed to be looking at the global basis, around the world, in terms of things that could be putting in stress on our financial system or putting systemic danger in the past.  There is not going to be a lot of wiggle room as I mentioned here for existing banks.  In effect, if you are a bank, you have to remain a bank.  You can’t switch back and forth between a bank and a broker-dealer in order to sort of gain the system for capital requirements and restrictions.  The capital requirements are not going to be lower than current levels.  This new crisis oversight council is going to be a public agency where the reports are made public.  They will have to appear before Congress on an annual basis and report.


Here’s required disclosures.    I thought this was an interesting thing.  It is something that I’ve complained about for a long time.  The SEC and the CFTC, they are going to have to settle the turf between any regulatory gaps related to over-the-counter derivatives.  It is simply not going to be the case for over-the-counter derivatives are unregulated.  They will have to settle that issue.


This is something that I would like to see how this is going to be actually be applied because they talk about a new clearing house for derivatives that can be cleared.  As you imagined, if you didn’t want your derivatives to be transparent and have visibility, you just make them something that cannot be clear, maybe by adding different elements of trade on various exchanges.  I don’t really like the language there.  I like the notion of the clearing house but I don’t like the notion of letting too many people off the hook.  Any financial institutions that are carrying derivatives on their books are going to have those available for regulators to oversee now.  I think those have been available in the past but not in a unified manner, now it’s sort of codified.


I mentioned this earlier, the shareholder voice in executive compensation.  They get to talk in terms of having a voice in executive pay by building them parachutes; the direct access to investor proxy is new.  An interesting element here is that if a senior officer of the firm has lied, the shareholders can force it to go back and recover funds from that person over the affected five years.  The SEC finally is now showing five-year record of executive compensation.



This is something new.  I think it is one of the things that I’m more excited about than some of the other elements is the oversight of the rating agencies which were often cited as part of the financial crisis.  They are going to have oversight by the SEC.  There’s going to be an office and regular inspections. The filings are going to be made public.  This would cover Moody, Fitch, Standard & Poor and any other rating agencies and those are the three that come to mind.


This is a major change and many of you may be familiar with it.  This is revoking of the Rule 436g on expert liability.    A rating agency now will be deemed acting in an expert capacity and they are not excluded from liability when it comes to their ratings.  They are not be able to say, “Don’t make your investments based on our ratings.”  They are going to have expert liability like a lot of folks on this topic of expert liability.


Here are some of the things that address that issue.  It puts them in the same boat as attorneys, accountants, engineers and expert witnesses. You can’t get off the hook because you say it is the best effort analysis and you don’t rely upon it.  So that is a major change.


Here is my paraphrasing of what I see in the bill.  It is my proprietary interpretation of it.  I think that we have to start some place and I’ll just read this because I think it is very important.  “Now the expert has liability unless it can be demonstrated that after reasonable investigation, the expert had grounds to believe and did believe that the opinions and statements were true and all material facts required for the representations where not misleading and nothing of the material nature was omitted. “   So that’s my understanding of the hurdle that experts will have, in terms of liability on the Dodd-Frank.


Here’s how it strengthens the existing financial regulations.  Again, it is not looking back.  It is looking forward.  It strengthens the Volcker Rule by keeping 3% of the bank’s tier one capital, the hedge fund.  I’m not sure how this is going to work.

The Dodd-Frank Wall Street Reform & Consumer Protection Act: The Impact on Regulatory Mandates & Securities Litigation Pt. 7 is brought to you by TASAnet, leader in consumer expert witness services in the legal industry.

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