Post-crisis Washington has been led until now by Democrats who believe more stringent capital markets regulations are the key to a safer and more efficient system. This perspective helped Dodd-Frank to pass and drove the subsequent agendas of the SEC and CFTC.
The majority view will change dramatically in 2017 via an atypical Republican president and a fully Republican Congress. Proposals that previously served as little more than sound bites must now be taken seriously, as Republicans finally have the votes to pass them.
We expect the Volcker Rule to be softened, Reg AT to be revamped if not killed, Reg NMS to be re-examined more closely than ever, and the move toward public reporting of U.S. Treasury trades to be slowed dramatically.
That said, we do not expect a repeal of Dodd-Frank and a full move to the right. Many of the changes brought about by Democratic-backed legislation are good, such as the move to central clearing, and the market would be damaged by a rollback.
But in addition to the aforementioned rule softening, do expect a less prescriptive and light-handed approach that should help reinvigorate market activity.