A provision in a Senate bill that some fear would eliminate the use of swaps and other derivatives by defined benefit and defined contribution plans “seems just short of nonsensical,” according to a Greenwich Associates report released Tuesday.
The key problem with the legislative provision in the Senate's financial regulation overhaul, approved by the Senate on May 20, is that it would require derivatives brokers to act as fiduciaries in transactions with pension funds and other retirement plans, according to the Greenwich report.
“By definition, the two sides of a swap transaction have conflicting interests,” said the report, “Derivatives Reform: Reducing Systemic Risk, but at What Cost?”
“While increased transparency and tough disclosure rules about potential conflicts of interests make sense as methods of protecting market participants, the fiduciary requirement as it currently exists in the bill seems just short of nonsensical,” the report says.
Senate and House leaders are now expected to meet in conference to work out the differences between their own regulatory overhaul bills. The House bill, which passed in December, does not include the fiduciary provision included in the Senate bill.