“US WATCHDOG SET TO WEAKEN DERIVATIVES RULES“ blared the headline in the Financial Times. Looks like the CFTC is poised to weaken a key derivatives rule, which will be a big win for Wall Street and put taxpayers at risk of having to fund more bailouts of the financial industry. Better Markets recently met with CFTC Commissioners arguing against this and sent them a letter detailing why it should not be allowed.
The dark, unregulated over-the-counter (OTC) derivatives market was a major component of the shadow banking system, where the last financial crisis was invisibly incubated, ignited the financial conflagration, and acted as a conveyor belt to transmit the crisis throughout the U.S. and global financial system. As demonstrated by a recent report by Better Markets, that crisis has cost trillions of dollars and caused economic wreckage across our country, ultimately totaling more than $12.8 trillion.
The CFTC’s proposed rule relates to a new derivatives trading platform called a SEF (Swap Execution Facility) and a type of trading called RFQ (Request for Quote), which are critical to bringing long-overdue transparency, regulation, fair competition, and systemic stability to those markets.
In recent meetings with Commissioner Wetjen and other Commissioners, Better Markets has argued that gutting the SEF rules will only help Wall Street’s biggest banks continue to control the marketplace and will defeat the purposes of financial reform. That’s why it’s called the ‘Derivatives Dealers Club.’ Requiring quotes from five market participants is the minimum that should be allowed. That will help to break the Wall Street oligopoly and bring fairness, transparency and greater stability to the derivatives markets, as required by law.
The law and rules shouldn’t be viewed as negotiating opportunities to get the most votes or accommodate Wall Street’s unending baseless complaints. The law was passed because Wall Street caused the biggest financial collapse since the Great Crash of 1929 and has inflicted the worst economy on the U.S. since the Great Depression. Financial reform is supposed to prevent that from happening again. The CFTC must stand up to Wall Street, reject self-serving, profit-maximizing arguments, and protect the American people.
The rule should be RFQ to all. RFQ to 5 in the proposed rule was already a greatly weakened compromise. Anything less is a defeat for Main Street and a victory for Wall Street, which will again try to pick the pockets of taxpayers for more bailouts. If enforcing the law and protecting taxpayers means a vote is 3 to 2, then that is what should happen. Compromised lowest common denominator rules are a disservice to the American people, especially all those still suffering from the economic wreckage Wall Street caused in large part by its reckless derivatives trading and investments.
Better Markets press release on this matter is here.