The slow and deliberate pace of Dodd-Frank implementation continues, as the issues are complex and do not lend themselves to easy solutions, the head of the Securities and Exchange Commission testified Tuesday. Mary Schapiro said the agency plans to issue new standards for the over-the-counter derivatives market in the coming months, specifically regarding the operations and governance of clearing agencies in the space. Rules establishing how and when security-based swaps participants register and file with the SEC, as well as fixed definitions of swaps, security-based swaps and mixed swaps will be laid out. OTCs are not listed on any exchanges, as the agreements are mutually made between two parties. A form of OTCs, credit default swaps, were used as credit enhancement for mortgage-backed securities during the boom years. The insurance CDS provides, however, proved to be insufficient to hedge against investor losses in the MBS space. When defaults began to rise in mid-2008, CDS firms could not keep up and some went out of business. Regulators wish to change that through reform. Schapiro told the House Financial Services Committee "there are unique challenges involved in imposing a comprehensive regulatory regime on existing markets, particularly ones that until now have been almost completely unregulated." She said the notional value of the OTC derivatives market has grown to $600 trillion since the first swap agreement was signed in the early 1980s. Yet the market and all its machinations were excluded from Commodity Futures Modernization Act of 2000. Now, Dodd-Frank mandates oversight of the market, including clearing of swaps, the operation of security-based swap execution facilities and data repositories, capital and margin requirements, business conduct standards for dealers and major participants among other things. Federal Reserve Gov. Daniel Tarullo also testified that the Fed has worked closely with the SEC and Commodity Futures Trading Commission to help shape the new OTC rules. Tarullo said the Fed also is working with international groups to develop a consistent "approach to the regulation and supervision of derivatives products and market infrastructures, as well as to the sound implementation of the agreed-upon approaches." He said capital and margin requirements are central to regulating financial institutions. "Banking organizations with deposit insurance or access to the Federal Reserve's discount window will have to reorganize some of their derivatives activity, pushing certain types of swaps out of subsidiary banks and into separate legal entities that will require separate capitalization and separate documentation of trades with existing customers," Tarullo said. Schapiro also expects the new regulation to increase disclosure on swaps, improve transparency and reduce counterparty risk. The SEC already outlined its proposals to mitigate potential conflicts of interests at security-based swaps clearing agencies, execution facilities and exchanges. And also proposed rules to combat fraud and manipulation in the marketing of security-based swaps, using the same set of standards that apply to all securities. In November, Schapiro said the era of "light-touch" regulation is over and the SEC no longer trusts the market to self-correct. The agency also recently named Stephen Cohen associate director of its enforcement division. Write to Jason Philyaw.