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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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