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Justice Dept Urges Tighter Ownership Rules For Swaps Exchanges

Published Wednesday, 29th December 2010 06:34 am - © 2010 Dow Jones

By Ryan Tracy


WASHINGTON -(Dow Jones)- The Justice Department urged financial regulators Tuesday to toughen ownership restrictions of new derivatives exchanges to prevent major banks from controlling the market.

The Justice Department released comments on Securities and Exchange Commission and Commodities and Futures Trading Commission rules designed to reduce conflicts of interest in the $583 trillion derivatives market. The rules, first proposed in October, emerged from the new Dodd-Frank financial law.

Central to those rules are limits on how clearinghouses and exchanges for derivatives trades may be structured. The Justice Department praised the other agencies' attempts to prevent individual banks or small groups of financial institutions from controlling those exchanges, potentially allowing them to freeze out competition or charge excessive trading fees.

But the Justice Department said the proposals fell short because they may not prevent major dealers from taking control.

The rules could allow "a dominant trading platform controlled by major dealers to the detriment of other market participants," the department said in a letters to the two other agencies.

The SEC and CFTC had proposed that the ownership of new derivatives trading platforms known as "swap execution facilities" be limited to 20% per individual owner with no aggregate limit applying to groups of owners.

Clearinghouses, meanwhile, would be able to choose one of two options, only one of which includes a limit on the ownership stake that certain financial institutions could collectively hold.

-By Ryan Tracy, Dow Jones Newswires; 202-862-9245;

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