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The Futures Industry Association today sent a letter to Congress urging lawmakers to oppose a clearinghouse-related amendment to H.R. 4173, the financial reform legislation now pending in the House of Representatives. The amendment, which is expected to be offered by Representative Stephen Lynch (D-Mass.), is designed to eliminate one group of market participants from the expected competition to clear over-the-counter swaps. In addition to reducing competition, the amendment would prevent clearing members that put up their capital to guarantee trades through clearing from having a meaningful voice in the operations of any clearinghouse. The House is scheduled to begin voting on H.R. 4173 this week. The legislation, the Wall Street Reform and Consumer Protection Act of 2009, contains measures to regulate the trading and clearing of OTC derivatives.
Attached below is the text of the FIA letter on the Lynch Amendment.
The Honorable Frank Lucas The Honorable Spencer BachusDear Representatives Peterson, Frank, Lucas and Bachus:
The Futures Industry Association (FIA) favors open and competitive markets. For decades we have championed competition among derivatives trading and clearing platforms. In our view that kind of competition serves customers and the public interest by lowering costs and spurring innovation. Competition also serves the fundamental goals of the reform legislation: robust competition among clearing platforms is the best way to ensure that every derivative that can be cleared will be cleared.
FIA opposes the Lynch Amendment because it will lead to less competition, not more. Its acknowledged purpose is to knock out one set of competitors while promoting the private business interests of another. In that sense, the Amendment conflicts with the public interest in fair and open competition.
The Amendment's stated purpose is to prevent one group of market participants -- the bank dealers -- from blocking other market participants from accessing clearing. But appropriate CFTC and SEC regulation for clearing would prevent any denial of fair and open access to clearing services for all participants. And the pending reform bills would do exactly that. Thus, the Amendment tries to fix a perceived problem these bills already effectively address, but without hampering competition among clearing platforms in any way.
Clearing houses rely on the capital provided by their clearing members, most of which are banks, to support the important guarantee that they provide. Clearing members may legitimately want to own a stake in the clearing house and have a say in how their capital will be used. That is sensible and fair representation, not a conflict of interest. In fact the bills require clearing houses to adopt governance arrangements that support the objectives of their participants. The Lynch Amendment should be defeated.
Sincerely,
John M. Damgard
President, Futures Industry Association
