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What is the Dodd Frank Act?

President Barack Obama signed the Dodd Frank Act into law on July 21, 2010. It is a lengthy bill, containing over 2,300 pages, that was created as a result of the financial crisis the U.S. has been suffering since 2007. The Dodd Frank can be explained as a major reform to the financial regulatory system in the U.S. It is designed to improve numerous areas of the economy by focusing on several key areas and increasing the regulation in these areas.

OTC Derivatives

One key area of regulation involved capital markets, in other words, derivatives. According to this new Act, there are numerous changes being made to these markets. This primarily focuses on over-the-counter (OTC) derivatives, which includes numerous types of transactions. The Act focuses on new procedures and regulations that are designed to decrease systemic risk. The Dodd Frank Law pushes that OTC derivatives should be available on major markets. One key feature of this bill is that supervision is now given to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) regarding what used to be unregulated OTC trades.

Although there are numerous groups of people opposed to this bill, Dodd Frank can be explained by stating the positive effects it is designed for. The primary purpose of this bill is to promote a safer financial system in the United States. By increasing regulation in the financial system, there should be less risk for investors. Other intentions of this bill include protecting consumers, preventing bailouts and further crises in the U.S. and promoting the growth of new jobs. 



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