November 17, 2010
As the chairman of the Senate Committee that regulates banking, insurance, and securities on an intra-state scale, I strongly feel the the need for further oversight and regulation has been clearly demonstrated over the past few years.
New rules proposed by the SEC and CFTC unfortunately contain a huge loophole that will allow these same banks to own majority interests in new derivatives clearinghouses. The rules state that no bank individually can own more than 5% of a clearinghouse, yet there is no limit on aggregate bank ownership of clearinghouses. In other words, a minimum of 11 banks (or shell entities created by the banks), owning 5 percent each, could attain majority voting ownership, and use the clearinghouses to prevent competition. This is a clear violation of the intent of the Dodd-Frank Wall Street Reform Consumer Protection Act. A point made by Lynch Amendment author Rep. Stephen Lynch in a recent letter to the CFTC:
Congressional intent is clearly on the side of open and meaningful competition. That intent would be erased by providing a loophole that basically allows a mere 11 dealers to dominate the clearinghouse, control a majority of its members, and dictate decisions of the organization by banding together with shared ownership under 5%. The largest dealers in this marketplace already have control of incumbent clearinghouses and could easily adapt to this structure, resulting in business as usual. I urge the SEC and CFTC to stay true to Congress clear intent to stop any entity or group of entities from dominating the clearinghouses, swap execution facilities, or exchanges that are so vital for successful implementation of the Dodd-Frank legislation. We need deep competitive markets where risks are dispersed and transparency reigns supreme.
Thank you for the opportunity to comment, Senator Joshua Miller - Dist. 28 Cranston/Warwick RI Chairman - Senate Comm. on Corperations, Member - Health and Human Services Comm