From the January 01, 2010 issue of Futures Magazine • Subscribe!

Derivatives reform debate

H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009, was passed in the House on Dec. 11, but not before industry leaders weighed in with debate on the bill.

Not surprisingly, there had been several amendments offered to Title III (the derivatives reform portion of the bill) that generated discussion. They included revisions to the definition of a “major swap participant,” the imposition of margin requirements on end-users, restrictions on the ownership of clearinghouses and mandatory exchange trading of OTC products. On Dec. 10, the House passed the Peterson-Frank amendment to HR.4173, which establishes a central clearing requirement for participants in the OTC derivatives market and exempts commercial end users from the clearing requirement.

The Futures Industry Association (FIA) took exception to the amendment put forward by Rep. Stephen Lynch, (D-Mass.). Lynch had proposed language that would preclude banks from owning more than 20% of any clearinghouse.

In a letter to Representatives Barney Frank (D-Mass.) and Spencer Bachus (R-Ala.), leaders of the House Committee on Financial Services, and to their counterparts on the House Committee on Agriculture, Representatives Collin Peterson (D-Minn.) and Frank Lucas (R-Okla.), FIA President John Damgard recommended defeat of Lynch’s amendment, pointing out that the amendment’s acknowledged purpose was to “knock out one set of competitors, while promoting the private business interests of another,” a direct conflict “with the public’s interest in fair and open competition.”

Damgard explained that clearing houses rely on the capital their members provide to guarantee trades and that it’s reasonable business practice to want to own a stake in the clearinghouse and know how your capital is being spent.

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