November 16, 2010
The Wall Street Reform Act was a major policy reform passed by Congress and the President and the intent and spirit of the law need to be followed in the regulatory process. One reason the law was passed was to ensure that transparency and accountability were part of the derivatives market. As the Wall Street Reform Act passes through the regulatory process please ensure that the intent of the law is not watered down when the regulations are written. We can ill afford another economic collapse created by Wall Street and our financial system.
Under the Wall Street Reform Act derivative transactions will have to pass through clearinghouses that are tasked with ensuring the transactions are backed with enough collateral to guarantee against future defaults. The clearinghouses were created to bring a level of transparency and accountability to the derivatives market that did not exist prior to 2010. To act as they are intended, these clearinghouses must remain independent from the ownership control of Big Banks and Hedge Funds. This independence is under threat by the proposed 5% Rule.
The 5% Rule being considered would allow 11 Big Banks to gain ownership control of each clearinghouse, greatly undermining their independence. Implementation of the 5% Rule will undermine the intent and spirit of the Wall Street Reform Act by allowing the Big Banks to once again control the derivatives market unchecked by an independent monitoring group.
There is an alternative, the 20/40 Rule. The 20/40 Rule will limit the ownership of the clearinghouses by the Big Banks to 40% overall, ensuring that each clearinghouse remains independent from the Big Banks and will be able to monitor the derivatives market as intended by the Wall Street Reform Act.
Please codify the 20/40 Rule into the regulatory scheme that your commission adopts for the clearinghouses. The 20/40 Rule will ensure that the clearinghouses remain independent from the Big Banks and that accountability and transparency become a part of the derivatives market. Please adopt the 20/40 Rule, America cant afford another economic debacle perpetuated by the Big Banks.