November 17, 2010
One of President Obamas major reforms, The Wall Street Reform and Consumer Protection Act, HR4173, was passed to ensure that transparency and accountability exist within the derivatives market. As your commission conducts the rulemaking process, please ensure that the many actors that caused our recent economic collapse, the hedge funds, Big Banks, and others, dont water down the regulations so the derivative market is allowed to once again derail Americas economy.
The Wall Street Reform Act requires that derivative transactions be processed through clearinghouses. These clearinghouses are intended to act as independent agencies, whose involvement in each transaction would create transparency over the amount of risk undertaken by the parties and ensure enough collateral exists to guarantee against defaults. America cannot afford the financial markets to once again destabilize our economy and lead to massive layoffs. To ensure that these clearinghouses remain independent from manipulation, their ownership must be monitored and regulated as called for by the Wall Street Reform Act.
The 20/40 Rule follows the intent of HR4173 by limiting the ownership of a clearinghouse by any number of big banks to 40% overall, which prevents them from holding a controlling interest in any clearinghouse. The 20/40 Rule will ensure that the clearinghouses are independent and the derivatives transactions that pass through them will be monitored in a transparent manner. The 5% Rule does not apply any such aggregate limits, meaning that a group of banks could work together to combine their 5% shares to reach a total joint interest exceeding 50%, a majority share that would allow them to control the clearinghouse. This would compromise the independence of the clearinghouses and allow Big Banks to continue to manipulate the derivatives market.
Please do not allow a repeat of the financial debacle created by the Big Banks and Hedge Funds through their manipulation of the derivative market. Ensure that the derivatives market is monitored by independent clearinghouses, which are not owned and operated by the Big Banks. Uphold the 20/40 Rule and get rid of the 5% Rule being lobbied by the Big Banks.