Banks, investors and companies are trying to cope with uncertainty caused by regulators' delays in fleshing out the Dodd-Frank financial-overhaul law, amid fears the holdup might disrupt the $583 trillion derivatives market and spark a wave of lawsuits.
More than 100 new derivatives requirements in the law take effect on July 16, even though regulators have yet to issue final rules in the affected areas. The holdup raises concerns that a large swath of the financial system might be thrown into legal gray areas.
The impact is in the over-the-counter market for derivatives, which are contracts whose value varies with the value of something else—some other financial instrument or some commodity or currency. Those who use and trade derivatives will become subject to a host of provisions, such as business-conduct rules and restrictions on certain trades.
Market participants said there is a chance derivatives trading could slow considerably as firms fret over potential legal repercussions from conduct that could be seen as improper.
The Commodity Futures Trading Commission and the SEC were supposed to finish rules creating a new regulatory framework for trading and clearing derivatives by July 21, the anniversary of when the law's signing.
The vast majority of the rules won't be complete by then. The law dictates that a host of provisions related to the rules go into effect 360 days after the law's passage, which is July 16.
Some nonfinancial businesses that use derivatives to hedge business risks, known as corporate end users, are worried they may not be able to legally engage in over-the-counter derivatives trading after July 16.
EU officials have stressed that the U.S. should not delay or weaken planned changes to the government oversight of financial markets.
U.S. and EU officials are pushing back against the idea that either will favor lax regulation as a way to attract capital and more financial services business to their shores.