Dodd–Frank Act: Wall Street Reform and Consumer Protection Act January 2015

Dodd-Frank Act Signed into law by President Barack Obama on July 21, 2010. The law was initially proposed on December 2, 2009, in the House of Representatives by Barney Frank, and in the Senate Banking Committee by Chairman Chris Dodd.

Provisions Title I - Financial Stability Title II - Orderly Liquidation Authority Title III - Transfer of Powers to the Comptroller, the FDIC, and the FED Title IV - Regulation of Advisers to Hedge Funds and Others Title V – Insurance Title VI - Improvements to Regulation Title VII - Wall Street Transparency and Accountability Title VIII - Payment, Clearing and Settlement Supervision

Provisions Title IX - Investor Protections and Improvements to the Regulation of Securities Title X - Bureau of Consumer Financial Protection Title XI - Federal Reserve System Provisions Title XII - Improving Access to Mainstream Financial Institutions Title XIII - Pay It Back Act Title XIV - Mortgage Reform and Anti-Predatory Lending Act Title XV - Miscellaneous Provisions Title XVI - Section 1256 Contracts

Volcker Rule What is the Volcker Rule? Volcker Rule was created to prohibit banks from using riskier investment vehicles Was originally planned to be initiated in July of 2012, but has been postponed for disagreements in constructing the rule for the time being. Created by Paul Volcker Would require banks from removing investments in private equity, hedge funds, and proprietary trading.

Volcker Rule What is the Volcker Rule? Entities required to follow Volcker would be Credit Unions Traditional Banks Investment Banks Short term trading strategies would be prohibited once Volcker Rule is passed Internal compliance departments would be required to set up, and larger banks would need to report to the appropriate agencies

Volcker Rule What is the Volcker Rule? Any investments put into a fund may not supply a source of revenue over 3 percent overall Entities would be allowed to participate in holding of foreign currencies to offset risk

Volcker Rule How would Volcker Rule be implemented? Banks would be required to exit out of their positions in the specified investments once the final draft has been published and a deadline is set Since progress for Volcker Rule seems to have hit a wall for the time being, banks may want to continue with their previous investment strategies that have been successful.

Volcker Rule There is an exception to the rule which allows banks to hedge assets on speculative trading if attempting to protect assets. Room for Improvement The exception is a large loophole for Volcker Rule that could eliminate the rule all together. Some ask, “ how should an employee be compensated if one wanted to reduce risk?”

Volcker Rule What others think Banks believe this will reduce incoming revenue from investing activities Traders think this will bring smaller bonuses Some believe the loophole is too lenient and that other requirements will need to be stricter as well.

How are Derivatives Affected? Dodd Frank’s goal for derivatives is to regulate more risk derivatives, like credit default swaps. Riskier derivatives would now be regulated by the SEC and CFTC. Clearing houses would be required to be constructed to make derivatives more transparent to the public for trading.

What will happen to Hedge Funds and Private Equity Hedge funds and Private Equity funds are now required to register with the SEC as an investment advisor They will also be required to release information on the contents of portfolios and information on trading activities

How will Credit Rating Agencies be affected? The Office of Credit Ratings is responsible for the compliance of credit rating agencies Agencies are audited annually, and findings are publicized The SEC is looking deeper into the methods of how companies are rated, and how they use third party information Other outside sources that are considered credible through previous due diligence of agencies and rating them can be used by the SEC

How will Credit Rating Agencies be affected? A conflict of interest clause was also added Agencies are now liable if they have knowledge that information is inaccurate and do not respond immediately The SEC has authority to delist agencies that are inaccurate with their ratings over time

Executive Compensation and Corporate Control Executive compensation is now controlled by the shareholders This is supposed to keep executives accountable for their actions Compensation will be affected by deceptive practices and changing of financial records to appeal to shareholders Shareholders have the power to nominate directors to shift goals to long term strategies

Accountability and Executive Compensation National securities exchanges and associations will be required to prohibit the listing of any security of an issuer that is not in compliance with the requirements of the compensation sections. At least once every 3 years, a public corporation is required to submit to a shareholder vote the approval of executive compensation. Once every six years there should be a shareholder vote whether the required approval of executive compensation should be more often that once every three years.

Accountability and Executive Compensation Shareholders may disapprove any Golden Parachute compensation to executives via a non-binding vote. Shareholders must be informed of the relationship between executive compensation actually paid and the financial performance of the issuer, taking into account any change in the value of the shares of stock and dividends of the issuer and any distributions.

Accountability and Executive Compensation Must disclose to shareholders: the median of the annual total compensation of all employees of the issuer, except the chief executive officer (or any equivalent position). the annual total compensation of the chief executive officer, or any equivalent position. the ratio of the amount of the medium of the annual total with the total CEO compensation.

Accountability and Executive Compensation The company shall also disclose to shareholders whether any employee or member of the board of directors is permitted to purchase financial instruments that are designed to hedge or offset any decrease in the market value of equity securities that are part of a compensation package. Compensation Committee must be independent.

Conclusion There are mixed views about Dodd Frank Those who are against it believe there are too many regulations that will negatively affect the industry Those who are for it consider it to be an asset in making investment entities more accountable

Conclusion The Act has been enacted for over three years now, but not all additional rules have been implemented yet Outcomes of Dodd Frank will be evaluated to be positive or negative in time