November 17, 2010
We took a great step forward as a nation when we passed The Wall Street Reform Act, HR 4173. As the Act passed through the regulatory process, I hope that the intent of the Act will be followed with transparency and accountability introduced to the derivatives market.
The Act created clearinghouses to act as independent monitors of the derivatives market. For the clearinghouses to act in an independent manner, they must be truly independent from outside forces. We 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.
You are currently reviewing two rules to regulate the ownership of the clearinghouses, the 20/40 Rule and the 5% Rule. The 20/40 Rule follows the spirit of HR4173 by limiting the ownership of a clearinghouse by any number of big banks to 40% overall, ensuring that big banks cannot control a majority stake in any clearinghouse. The 5% Rule does not apply any such aggregate limits, allowing 11 banks to control a majority interest in any clearinghouse. If the 5% Rule is implemented, the independence of the clearinghouses will be at great risk and the ability for Big Banks to continue to manipulate the derivatives market will remain.
We have already seen how well an unregulated derivatives market functions with Big Banks able to act without any to the risk they are undertaking with each derivatives swap. If we are to avoid repeating the mistakes of the past, such a co-opting of the clearinghouses must be prevented. I urge you to uphold the 20/40 Rule to ensure that the derivatives market is monitored by independent clearinghouses that ensures both transparency in the market and accountability for each transaction.