A divided Securities and Exchange Commission on Wednesday voted 3-2 to make it easier for major swaps dealers and market participants to hire or associate with people disqualified from the derivatives market if other regulators allow it.
The two Democratic commissioners voted against the "bad actor" rule, with Commissioner Kara M. Stein saying the SEC abrogated its authority "for little reason other than to carve out wrongdoers from having to obtain waivers" from the SEC. Commissioner Robert J. Jackson Jr. questioned whether there is an "economic case for smoothing bad actors' path to readmission. There is no free lunch in financial markets. If we fail to deter bad actors, investors will have to pay to protect themselves," Mr. Jackson said.
Republican Commissioner Hester M. Peirce said the change known as Rule 194 strikes a balance between how the SEC and other regulators, including the Commodity Futures Trading Commission and industry groups, oversee swap participants while also ensuring that markets are not disrupted. "We are not leaving our markets unprotected," Ms. Peirce said.
While voting to approve the rule, which Chairman Jay Clayton said was a recognition that the SEC is one of many regulators in this area, he also agreed with Ms. Stein that greater transparency into the swaps waiver process "is an area where the commission can improve."
The commission also agreed unanimously to advance risk-mitigation rules for swaps portfolios that are not submitted for clearing to a central counterparty.