Sen. Brown Seeks Limits On Banks' Stakes In Clearinghouses
31 Marzo 2010 - 10:20PM
Dow Jones News
A Democratic member of the Senate Banking Committee wants to
limit controlling stakes by dealer banks in swap clearinghouses and
trading platforms.
Sen. Sherrod Brown (D., Ohio) has crafted an amendment to the
financial overhaul bill that is similar to one inserted by Rep.
Stephen Lynch (D., Mass.) into the House financial overhaul bill in
December. The issue could come up when the U.S. Senate begins
debate on the financial bill in April.
His amendment, like Lynch's, would restrict banks that deal in
swaps from acquiring an ownership interest in a clearinghouse if
that acquisition would collectively give the banks more than a 20%
voting stake. It aims to prevent conflicts of interest by banks
that have a hand in both trading swaps and then potentially making
decisions on which of those get routed to clearinghouses, which
guarantee trades.
"If we're worried about banks being too big to fail, should we
encourage them to get bigger and more opaque? My amendment would
promote a small measure of competition and transparency where it is
sorely needed," Sen. Brown said in a statement Wednesday. "The five
biggest banks already control 97% of all U.S. derivatives. They
shouldn't control the marketplace for those derivatives, too."
The fight around the Lynch amendment in the House drew fire from
many in the financial industry last year, after it became known
that Nasdaq OMX (NDAQ) was among its biggest backers.
Nasdaq owns a majority stake in a new interest-rate swap
clearing venture called the International Derivatives Clearing
Group, which is still trying to drum up business.
Opponents of the measure last year included interest-rate swap
clearing rivals LCH.Clearnet, the dominant clearinghouse for
interest-rate swaps, and NYSE Euronext (NYX), which has partnered
with the Depository Trust & Clearing Corp. to launch a new
interest-rate swap clearing business.
Rivals were worried that the measure could give Nasdaq an unfair
competitive advantage. LCH.Clearnet is 83% controlled by its users,
including big banks--well above the 20% threshold. The DTCC
operates as a utility and is also owned by some of the financial
firms that are its biggest users.
Both Lynch's amendment and Brown's latest proposal contain
language seeking to protect existing clearing ventures from being
affected by any new rules. But that language alone is not likely to
quell opposition.
Larry Thompson, DTCC's general counsel, said Wednesday he hadn't
yet seen the details of Brown's amendment, but the Lynch amendment
is problematic because it creates artificial ownership barriers and
doesn't appreciate the benefits of a cooperative utility model like
DTCC's, which allots shares based on usage.
"We want the members who use us to have skin in the game,"
Thompson said. "It makes sense for them from a risk-management
standpoint."
A Senate staffer said Wednesday that Brown has met with Nasdaq,
along with many other interested parties, on the issue.
It's still uncertain if Brown will opt to push for his amendment
or some version of it to be included in the final bill.
Right now the financial overhaul bill crafted by Senate Banking
Chairman Christopher Dodd (D., Conn.) doesn't mandate any specific
restrictions on voting rights for banks that own equity stakes in
clearinghouses, but it does give regulators the tools to write
rules to address potential conflicts in this area.
The bill, however, could still be changed, because the section
on derivatives must be reconciled with a version that the Senate
Agriculture Committee is planning to unveil sometime after
Easter.
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;
sarah.lynch@dowjones.com
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