November 17, 2010
Our economy has been damaged by reckless behaviors on Wall Street, but thankfully the recent Wall Street reforms passed by our legislature will do much to help prevent the mistakes of the past from being repeated. It is my hope that your commission will uphold the spirit of this regulation through the regulatory process and its ultimate implementation.
Obviously, alternate interpretations and suggestions are considered during the regulatory period, but one in particular has me concerned: the 5% Rule. This rule pertains to the clearinghouse requirement for derivative swaps, limiting the ownership share that any one entity can hold to 5% or less. While on the face this seems like a good idea, it misses a vital point of the original legislation. The original incarnation of the bill had a 20% ownership cap, but it also had an aggregate ownership cap for big banks set at 40%. The 5% Rule puts no such limit on what percent of the clearinghouse can be owned by entities that qualify as big banks, meaning that if enough banks team up in the same clearinghouse, they will control the entity that was meant to monitor their transactions.
Meaningful reform means that we must prevent circumvention of the process, which is exactly what the 5% Rule not only allows, but encourages. Meaningful reform is the spirit and the intention of the Wall Street reform bill, so I hope you will maintain this intent by doing away with the 5% Rule.