Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 for the purpose of reforming the American financial regulatory system. A response to the financial crisis of the late 2000s, it is intended to improve transparency in the financial system, enhance consumer protections, end the phenomenon of "too big to fail" financial institutions, and implement other reforms.

The Dodd-Frank Act affects government bodies such as the FDIC, SEC and the Federal Reserve. It also establishes a Bureau of Consumer Financial Protection, which operates indpendently within the Fed. Other reforms affect insurance, mortgages, executive compensation and securities markets. The Act introduces regulations and reporting requirements for hedge funds, the first of their kind. Most of the provisions of the legislation that affect the financial markets relate to the largest institutions. Large banks and other entities that have the potential to destabilize the financial system as a whole are a primary concern.

One major provision affecting financial market participants stipulates that swaps, previously negotiated and traded over the counter (OTC, between two parties privately), be cleared through exchanges. The CFTC and SEC are given power to regulate swaps. Trades in commodity futures and physically settled OTC derivatives (including precious metals) are not affected by the Act. Therefore most retail commodity traders should not be affected by the Act. However, some new powers are granted to the CFTC and SEC that may in time result in changes affecting precious metals traders.

In addition, the SEC is given the power under the Act to regulate broker-dealers' and advisers' communication with retail investors. Retail investors must receive concise information on the risks, costs and any conflicts of interest created by the broker-dealer that affect a given product or service.