The Futures Industry Association (FIA) hosted a panel on Oct. 18 to discuss the status of clearing in Chicago including a look at where we are going from here. Speakers included heads from the Options Clearing Corporation (OCC), CME Group and ICE Clear U.S. Of particular interest to each speaker was the Commodity Futures Trading Commission's (CFTC) rules that were proposed that would limit the ownership a single entity could hold in a swaps clearinghouse.
The CFTC recently began releasing rule proposals to fulfill its mandate from Dodd-Frank. Among the first set delivered to the industry for comment was a proposal to limit conflicts of interest in swaps clearinghouses by setting ownership limits. While it initially sounds good, a number of people have spoken out against the proposal. According to Gary DeWaal, general counsel at Newedge, "“If two or three dealers can come up with a great idea and bring something innovative to the clearing front, why should they be prohibited? Let the marketplace decide whether they like that or not. There’s already a tremendous concentration in the United States in the clearing space and anything that discourages competition at this point is a negative.”
It is an issue clearinghouses are looking very closely at, as was evident in Michael Cahill's, president & chief executive officer of Options Clearing Corporation, comments at the FIA panel. "This would require quite a bit of change in a governance, ownership and board structure that has worked very efficiently for nearly 40 years," he says.
There is still a long way to go before the proposed rule becomes law. Ultimately, the CFTC and SEC are attempting to make the markets a more secure place. Perhaps costs just need to be considered more closely. "[We hope] the type of rules and regulations we get out of Dodd-Frank ultimately serve us all best, foster competition and don’t produce any unintended consequences or costs," Timothy Doar, managing director of risk management at CME Group, said at the panel.
One thing the futures industry has continued to do is grow. As swaps are coming under much of the same regulation as futures, there is sure to be some growing pains that need to be worked out. According to Thomas Hammond, president & chief operating officer at ICE Clear U.S., one thing is sure, "The futures industry has always prided itself on innovation." That innovation just needs to extend a little further now.