Differentiating Centralization and Overlap in Swap Regulation

This chapter explains how legislative changes to, and the broader commentary on, US derivatives regulation illustrate the value of parsing the overlap/distinct and centralization/decentralization dimensions in assessing the tradeoffs of regulatory allocations. The Securities and Exchange Commission and the Commodity Futures Trading Commission have been tasked with decentralized authority over securities and futures, respectively. Over time, their jurisdictions have increasingly overlapped as the futures and securities markets converged. Reorganization proposals and legislation to correct perceived problems with the overlapping, decentralized regulatory regime (such as Title VII of the Dodd-Frank Act) have usually failed to parse the various tradeoffs between overlap and distinct or between centralized and decentralized authority. By limiting their analysis, policymakers and observers of derivatives regulation may have misdiagnosed problems with the existing allocation or missed potential opportunities to craft different regulatory configurations that might have better accommodated policy tradeoffs or been more politically viable.