Securities and Exchange Commission chairman Mary Schapiro express important that the action on a stock frank. Chairman schapiro said the libel make markets more transparent, stable and efficient. From George WashingtonUniversity Law school, and this is 45 minutes. Good morning. I am paul berman, 19 of the law school as art said and i want to welcome you to this conference and obviously welcome Mary Schapiro, chairman of the securities and Exchange Commission. So one of the things that i think makes this law school, the George WashingtonUniversity Law school distinctive and different from other top law schools is the degree to which we are integrated into the real world of law and policy practice in this country. So one of the things we are always striving to do this not be an ivory tower Academic Institution solely, but also one that is always trying to engage the practicing bar, people from corporations, people who are not lawyers in the educational enterprise and also when Public Policy discussions. Obviously we have a great advantage in being in washington d. C. And having so much access to the world of policy. But in addition, its not just the location. It has to be your orientation as a law school. So it is something that ive emphasized since ive arrived, but long predates me, that this school wants to always be the place to convene Public Policy discussions, to create a forum for actionable information, to create an opportunity for nonpartisan and bipartisan discussion. As i like to stay in d. C. , but outside the glare of d. C. , not on a congressional hearing room floor, not a formal interagency process, but in academic and touche in, where important policy discussions can be had and maybe we can move the ball forward on important issues of thought leadership. In that regard, we are thrilled to be able to host this conference. And this is part of a series of conferences we have held over the last few years on the important regulatory reforms of doddfrank and to welcome back to the law school, Mary Schapiro. Merry is not only graduate of the law school, but has been a great friend of the law school for many years. She is spoken here on numerous occasions that we are always thrilled to have the opportunity to welcome her. And im really grateful that she has figured out a way to fit this into her unbelievably busy schedule so that she can be here to speak and give us her views up to the minute news from the sec. So please join me in welcoming Mary Schapiro. [applause] good morning, everyone. Thank you for the kind introduction and effect for your wonderful stewardship and leadership of my alma mater. Its always wonderful to be back at gw. I also want to thank day symposium. Its an important to contribute to the debate and discussion around financial regulatory reform. Four years ago this month, this nation was suffering from a near collapse of our Financial System. While there are differences of opinion as to what was the most significant trigger, a Bipartisan SenateCommittee Report known as the levin coburn report asserted the crisis was a result of high risk, complex Financial Products, interest in the failure of regulators, Credit Rating these in the market itself to rein in the excesses of wall street. While the spirit of our history will be read and then reread it over and over again, congress and the administration knew that the status quo was unacceptable. So together they passed landmark legislation to address many issues highlighted during that tumultuous period. The doddfrank ulster reform act is a vital and comprehensive response to the financial crisis, an event that devastated the American Economy, cost the American People trying to dollars and millions of jobs and undermine the confidence in our Financial System requires if it is to drive and support a growing economy. The sweeping scope of this financial reform legislation sometimes it secures the fact that despite its breath, and is rooted in the handful of sound principles that should have been more firmly in place before the crisis in his embrace serves to make markets more stable and efficient. Simple principles, like markets should be transparent, regulation should be consistent without gaps that can be exploited by those who wish to indulge in risky, destabilizing or even illegal behavior. Market participants, not taxpayer should read the risk market activities and regulator should have willingness in both the need to apply these principles to the daytoday workings of the Financial Markets. The doddfrank actress at a principles into the foundation for effective regulation. Interestingly, the title of the historic legislation seems to suggest there were two parts of the bill, wall street reform on one hand and Consumer Protection on the other. Get a closer examination of the log reveals that both portions are rooted in the same import fundamentals. That is because opacity, flaws and regulatory gaps make the system less able to reform its application function, more likely to collapse and more likely to subject investors to harm. When i was invited to join you today, and he berman offered me an opportunity to speak on a wide variety of topics not entirely focused on the doddfrank act, but if some of us lived and breathed doddfrank since well before the passage in july 2010th, im sure i can speak for hours on even the most arcane aspects of that legislation, but i promise you i wont. When i arrived as sec chairman in january 2009, there were some calling to the agency to be abolished or split up and divided among entities. So when the financial reform legislation has been drafted, i took a particularly active role in advocating the importance of the secs mission, a mission to protect investors and ensure the efficient operation of our markets information of capital. I impressed upon policymakers that the sec could and would step up and fulfill it mission. In the process cannot work with those on the healing at frustration to ensure the sec would have this authority bolstered, not weekend and i am pleased that has occurred. It was a sign that congress appreciated the need for strong sec. At the same time, im also Proud Congress gave his tools and doddfrank that i thought, for example to create a new Whistleblower Program resulted in high quality tips from insiders at initial firms, to require Hedge Fund Advisers for the first time to register and be subject to our bolstered to proceed with additional clarity in establishing a uniform standard governing conduct of Investment Advisers or broker dealers and to develop a comprehensive Regulatory Regime for overthecounter derivatives among many other things. Today is like to focus on a few specific provisions of the act, tying back to fundamentals and mentioned a moment ago in hopes that should the students who are with us today ever put your impressive educations to use as public servant, you will look back you look at potential regulation and just display. So let me start with title vii of doddfrank, part of the active for the first time creates a comprehensive Regulatory Regime for the overthecounter torontobased market. Title vii illustrates the importance of Financial Fundamentals on a vast scale, addressing nature of this market with a global notional value of some 650 trillion. Derivatives are Financial Products and derive their value from some underlying theme and one common type of derivative is a swap, which is the financial contract in which two counterparties agree to exchange or sloppiness with each other as a result of things such as changes in stock right, Interest Rate or commodity price. Back in the early 90s when i served as commissioner at the sec and later as chairman of the cftc, it is difficult to imagine the sheer size or potential impact of the emerging market. At that time, the notion of the drip at its market hovered around 10 trillion much of that was comprised of hedging by endusers the risk of currency or commodity price fluctuation. That is companies were essentially using these transactions as insurance against anand ursuline. While there were some regulators who appreciated the need to get a better handle on what was going on behind the curtain, industry strenuously object to any regulation and with the commodity futures modernization act of 2000, congress created a huge gap in the regulatory structure by specifically excluding most otc derivatives from any Regulatory Oversight. The result was a vast market operating behind an opaque curtain, whose transactions are not visible to regulators or other Market Participants. They got the regulation but thriving markets, namely transparency. Not only to be ignored, that should be actively reject it. Unfortunately, as we found her in the financial crisis, firms have entered into otc derivative transactions to reduce market risk has simply flawed one risk for another. Market risk for counterparty risk. Opacity in the market made it such that firms could not be sure that the counterparties to their swaps would be loath to make good on transactions if circumstances demand it. In fact, as more and more otc derivatives were transacted across the system, an elaborate network of risk bills to your firms are not only subject to the risk that their own counterparties could not make it a transaction, but that their counterparties counterparties might feel to live up to the terms. Increasing risk to the original counterparties and there by train getting it back to the original firm. This type of cross rochon activity has the ability to greatly magnify the shock of a significant default by any single firm. According to the financial crisis, during the crisis there is a real possibility that the default of a single large counterparty could set up the Chain Reaction that was spread through many interconnected institutions. Traders in the commissions words rush for the exit. Asset values felt our Risk Management in the absence of liquid derivative markets became vastly more complicated and credit dried up. Title vii of doddfrank addresses challenges in the Derivatives Market by closing the gaps created by the commodity futures modernization act and bringing the otc Derivatives Market into the daylight. And working with the commodities future trading commission, we have been writing rolls that fill out an entirely new Regulatory Regime, one that strengthens the stability of our Financial System. These rules do this by improving transparency and facilitating a centralized clarinet security based swaps, helping among other things to reduce the counterparty risk, enhancing Investor Protection through increased disclosure, regarding security based swap transactions and mitigating conflicts of interests of dealers and other major participants involved in security based swaps. By promoting transparency, efficiency and stability, the framework is intended to foster a more nimble in competitive market and enhance Regulatory Oversight and monitoring by facilitating improved access to comprehensive data on the security based swap market. A report released by a major Market Participant last year underscores the benefits of bringing Financial Fundamentals into this market. It predicts that the market for Interest Rate and credit default swaps will grow by more than 10 by 2013. Quote, notional values and derivatives are expected to rise to to increase transparency and counterparty risk mitigation. Instead of transacted business behind closed doors, this new system will require certain transactions to be conducted on a public trading platform. Once the transaction has occurred, the rules will require information about the tree to be reported to a Data Repository and in turn, the information will be shared with the public. Many trees will be handled by a clearinghouse for essentially another the steps in place of the counterparty and effectively assumes the risk should there be a default. Despite being handed the lions share of the rulemaking under doddfrank, and please the sec has now proposed stanch the all the roles that create this Regulatory Regime for derivatives within our jurisdiction and in some cases has adopted the final rules. This spring and summer, joint me with the cftc, the sec adopted keebles interpretation on which this entire new regime will be built. We also recently adopted rules regarding our clearing infrastructure, the group of middlemen critical to achieving the goals of title vii. In june of this year, we adopted will specifying how clear agencies are just a minute or nation to the sec so they can decide which security based swaps must be cleared. Just this week we adopted rules outlined standards for the Risk Management and operation of clearing agencies. Even without the Regulatory Regime fully in place, more and more swaps are already being cleared, a trend that reduces and should accelerate as the rules come online. To help ensure the system comes online in an orderly fashion, weve drawn about not setting forth the anticipated sequencing of complaints dates for when the rules will take effect. Our goal is to avoid the cost to disruption that could result if compliance with all the rules were required simultaneously or haphazardly. Market participants have provided comments on this roadmap and we look forward to completing the adoption process for rules already proposed, but not yet final. Building a comprehensive Regulatory Regime from the ground up in closed court nation but the cftc and in consultation with numerous other domestic and overseas regulators is an immense task involving uncounted action for details, not to mention hundreds of meetings with them thousands of comment letters to stakeholders. But we will not lose sight of the big picture. If the new marketplace is truly transparent, it will work better and more efficiently for all parties. If you close the regulatory gap, Financial Markets will be safer or investors and for economies around the world. The Market Participants focused on title vii generally speaking are large players. Airlines that want to hedge the price of a years worth of jet fuel, hedge funds that want to take a bat of a billion dollars on the direction of the euro. But the provisions of title nine, unlike title vii im much more likely to directly touch the lives of you and me. Designated the Consumer Protection section, it is in fact also full of systemic safeguards. Designed to allow practices, which at first seem only to affect individual investors or specific kinds of participants in the financial time. These practices cumulate a shirt Financial System to his foundation and despite the difference in the size and nature of the players engaged by title ix, the need to have the Playing Field defined by the same sort of fundamentals remains. Lets take home mortgages. Persuading potential home buyers assumed a mortgage has no ability to repay sounds like a classic Consumer Protection problem. But when millions of bad mortgages are written, bundled and chopped into security, the Financial System as a whole shattered. Its impossible to pinpoint the exact moment the financial crisis began, but clearly a major turning point was when bear stearns collapsed in march 2008, drag down by the billions of dollars in toxic mortgagebacked securities, two of its affiliated hedge funds had acquired. The problems underlying security began long before they found their way into the portfolios of the highgrade structured credit fund and the highgrade credit enhanced leverage fund. Again a fundamental principle is being circumvented. Institutions, which profited in the origination they found a way to do so with little or no risk to themselves. During the housing bubble, Companies Found they could rate mortgages and then sell them off, pocketing origination fee for passing the risky securitization. Some origination or no risk they had every incentive to lead underwriting standards slide. In the error of interest only, mortgagor renovators fishponds at the door with little or no the duration of what the mortgagees would be able to pay. Even before the doc frank act passed, sec imposed legislation to bring reform to this market by requiring the securitize theres a abf provide investors with the date and time needed to analyze independently the soundness of risk offered, the soundness of the investment risk offered by the assets underlying securities, bringing us we were working to do in title vii, Greater Transparency to