The debate over the 2300-page Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 came to an official end yesterday when President Obama signed the bill into law. But the debate over how to implement the law has just begun.

The bill’s marquee accomplishments are the creation of a Consumer Financial Protection Bureau, to be housed within the Federal Reserve, and a new oversight body that will take a broad view of the financial sector and attempt to identify the systemic risks that caused the financial meltdown of 2008.

For the ETF community, however, the Dodd-Frank bill’s most far-reaching effects are far from certain. Among the new law’s reforms is an attempt to eliminate the “dark pools” of capital in which derivatives trading now takes place. The bill as written seeks to move the derivatives market into public exchanges overseen by clearinghouse entities that would step in to make good on derivatives bets gone bad.

The elimination of dark pools is a potential game-changer for sponsors of actively managed and leveraged ETFs, which make heavy use of derivatives to execute their investment strategies.

In a recent interview with IndexUniverse, Newton, Mass.-based Direxion’s Senior Vice President Andy O’Rourke said that if the swaps contracts his firm uses in its double-exposure retail and natural gas sector funds were to begin trading on public exchanges, then expense ratios would likely go up.

The implementation of the bill, which merely sets forth a broad framework for reforming the financial sector, is still up to the Securities and Exchange Commission, the Commodity Futures Trading Commission and the other regulatory agencies that will promulgate the rules under which ETF sponsors and traders will operate.

Regulatory Brain Drain

In a telephone interview, George Simon, a partner with the law firm Foley & Lardner and an expert in securities law, said that there would likely be no immediate impact on the ETF space, even with the Dodd-Frank bill’s requirement that derivatives come out of the shadows.

“There is so much rule making that has to happen before the bill goes into effect that we won’t really understand how this bill works for a couple of years,” Simon said.

Simon hastened to add, however, that one near-term effect of the bill could be a simple lack of personnel as the regulatory agencies scramble to study and interpret Dodd-Frank.

“When you see how something as minor as the [May 6] flash crash can grind the approval of innovative ETFs to a halt, then you can only imagine what this bill would do to the launching of new ETFs.”