Role reversal

In a somewhat strange comment letter, a group of financial trade groups have asked financial regulatory agencies to slow down the pace of its rule implementation of the Dodd-Frank Act. Strange in that representatives of the private sector more often than not view government workers as being slow and plodding. Most would say that those government workers wouldn’t last very long in the private sector where efficiency is a must.

So it is a little surprising to hear from a group of eight industry associations representing the largest names in finance that the government is producing work at a pace too quick for them to absorb. That is if you believe their altruistic motives.

The more cynical may see this simply as a case of financial insiders attempting to slow down implementation of rules that could alter a tilted playing field in over-the-counter trading. We are talking about firms that helped shape their own bailout in terms that allowed them to earn record profits a year later.

One end user, Marti Tirannanzi, Chairman of the Clearinghouse Working Group at Federal Housing Finance Agency, told us back in March that the FHFA was prepared to clear OTC interest rate swaps before they are mandated and have done so. She also said that she wanted several clearing options to choose from. Now clearing interest rate swaps is just one small part of the rule writing process and to be fair with the trade groups, the pace of rules being put out for comment by the regulators, particularly the Commodity Futures Trading Commission (CFTC), has been particularly brisk.

But the point is, much of the Dodd-Frank Act reforms pushes OTC trading into a world that those entities are familiar with, listed exchange trading and clearing. If there is any confusion it is probably in navigating the exemptions many of those institutions fought for, so it is somewhat disengenuous for those same institutions to use those compromises they won to further delay implementation.

The push to move OTC products on exchange and into clearinghouses has been going on for a long time so nothing in any of these rules should be completely new to the financial sector. Interactive Brokers CEO Thomas Peterffy suggested to us and in a speech to the World Federation of Exchanges that large banking institutions were simply trying to delay things as long as they could and protect their edge in OTC trading.

Hate to be so cynical around the holidays but if we allow the institutions which created the crisis to dictate its solution — it already had a pretty good seat at the table in dictating the bailout—then we deserve what we get.

About the Author
Daniel P. Collins

Editor-in-Chief of Futures Magazine, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures in 2001 and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and futuresmag.com. Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.

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