The text of the Dodd-Frank Wall Street Reform and Consumer Protection Act, thankfully generally known on Capitol Hill and Wall Street as Dodd-Frank, contains some interesting locutions but none more so than the division of swap transactions into “security-based swaps” and “swaps”.

While the Securities and Exchange Commission will regulate security-based swaps, the Commodity Futures Trading Commission holds sway over swaps. This, in turn, leads to a bifurcation of responsibilities that at first glance seems at best counter-intuitive and at worst utterly nonsensical. For example, while credit-default swap index trades will be governed by the CFTC, single-name CDS trades fall within the SEC's ambit of responsibility. Single-name CDS trades and CDS index trades have a lot in common, yet they are treated differently by two different regulatory bodies.