Banks and major swaps users would be limited to owning no more than 20% of derivatives clearinghouses, exchanges and trading systems, under a CFTC proposal Friday.
At a hearing in Washington, the Commodity Futures Trading Commission presented initial rules to govern the $615 trillion over-the-counter derivatives market. For clearinghouses only, the CFTC is proposing to cap collective stakes by bank holding companies, non-bank financial firms, major swaps users or dealers to 40%, the commission said. Those entities are known as restricted owners.
The CFTC is proposing the rules to address potential conflict of interest in how banks and major swaps users may favor a clearinghouse they own over competitors. An ownership cap “limits the influence that certain shareholders may exert” over clearinghouses, exchanges and trading systems, the CFTC said.
“This is the one that has had the most debate” among the five CFTC commissioners, CFTC Chairman Gary Gensler said at the hearing. Mr. Gensler and Commissioner Scott O’Malia said they would support the proposed rules.
U.S. lawmakers sought to regulate swaps through the Dodd-Frank bill passed in July after the trades complicated efforts to solve the financial crisis. In most cases, regulators have until July 2011 to write the new guidelines, which mandate that most interest-rate, credit-default and other swaps be processed by clearinghouses after being traded on exchanges or swap-execution facilities.
A second ownership option proposed by the CFTC for clearinghouses would have no limits on the combined stake of restricted owners if none of their individual holdings exceeded 5%. The proposed rules don’t allow existing clearinghouses that exceed the ownership caps to be exempted, though they do allow for companies to apply to the CFTC for a waiver on the new rules.
The ownership caps apply only to stakes that come with the right to vote on corporate matters. The five CFTC commissioners will discuss the proposals Friday and vote to release them as initial rules, then begin a public comment period. Changes could be made before final versions are voted on.