CORRECT: Nasdaq Made Strong Push To Limit Banks' Stakes In Clearing
16 Dicembre 2009 - 1:35AM
Dow Jones News
Nasdaq OMX Group Inc.'s (NDAQ) maneuvering to secure support for
legislation that could limit competition from clearinghouse rivals
included help from a former House Financial Services committee
chairman and a memo warning against "abusive" bank cartels.
The proposal would restrict banks and major traders from
collectively owning more than a 20% voting stake in swap clearing
and trading platforms. Sponsored by Rep. Stephen Lynch (D., Mass.),
it was added to a broader financial-regulation bill in the House
last week on a 228-202 vote.
The measure comes as critics assail the role banks played in
creating the complex derivatives linked to last year's financial
crisis. If enacted, critics say Nasdaq's new interest-rate
swap-clearing venture could gain a competitive edge over clearing
rivals such as LCH.Clearnet, which is more than 20% controlled by
users including dealer banks.
The provision has triggered intense lobbying, with opposition
coming from big banks, some business-friendly Democrats and
Nasdaq's chief rivals NYSE Euronext (NYX) and LCH.Clearnet, the
leading clearer of interest-rate swaps.
But Nasdaq has demonstrated its ability to fight back. In
addition to meeting with lawmakers, the exchange operator sent a
strongly worded memo around Capitol Hill that a Nasdaq spokeswoman
said was "in response to misinformation being spread about the
amendment." Nasdaq also garnered some support from former House
Financial Services Chairman Michael Oxley (R., Ohio).
Oxley, an attorney for Baker Hostetler who also serves as a
senior adviser to Nasdaq's board, reached out to some lawmakers to
discuss the Lynch amendment. He didn't return a call seeking
comment.
In the end, a total of 18 Republicans went against the will of
their party leaders and voted for the plan. Of those, five of them
served with Oxley when he was on the House Energy Committee.
House Agriculture Chairman Collin Peterson (D., Minn.) voted for
the Lynch amendment a week after he said he planned to oppose it.
Peterson said Oxley was among the team from Nasdaq that met with
House Agriculture staff for one of three meetings to discuss
over-the-counter derivatives issues, including the clearing
ownership restrictions.
"Their message was not to lobby for or against it," Peterson
said, noting that they merely explained how it would work. "What
they told me didn't have any effect on what I decided to do."
The Lynch amendment faced opposition by numerous groups
including LCH.Clearnet, the Securities and Financial Markets
Association, the International Swaps and Derivatives Association
and NYSE Euronext, which is launching a joint interest-rate swap
clearing venture with Depository Trust & Clearing Corp. that
could also be affected by the measure.
Lobbying against the amendment intensified in the days leading
up to the vote. One letter, sent to lawmakers from an NYSE Euronext
lobbyist, warned that the Lynch amendment would limit competition.
The chief executive of LCH.Clearnet, meanwhile, said he believes
the amendment could affect the clearinghouse's ownership structure
and harm U.S. customers.
One of Lynch's fellow Democrats, Rep. Michael McMahon (D., N.Y.)
sent out a letter leading up the vote urging its defeat and saying
it would have "destructive unintended consequences."
Opposition to the proposal convinced Lynch to change some of the
language to protect existing clearing platforms, but it didn't
quell concerns by big banks.
In a final effort to counter the banks' claims, Nasdaq
circulated a document around the Hill which referred to big banks
as an "abusive cartel" that controls the derivatives market.
"In a market where a cartel of dealer banks write virtually all
of the swap contracts, their counterparties have no leverage to
insist on sound risk management or transparency," said the memo,
which was titled "Myths that the TARP Banks are Spreading About the
Lynch Amendment."
"We felt Rep. Lynch had a strong argument and we wanted to
clarify questions raised to us about the amendment," a Nasdaq
spokeswoman said.
Although the measure ultimately passed in the House, passage of
a similar provision in the Senate remains highly uncertain.
Peterson said last week that he thought Senate approval was
questionable.
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;
sarah.lynch@dowjones.com
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