Comment Text:
Commodity Futures Trading Commission
Attn: David Stawick, Secretary
Three Lafayette Center
1155 21st Street, NW
Washington, DC 20581
RE: Comments Regarding Regulatory Initiatives for Dodd-Frank Act
RIN 3038-AD01
Dear Chairman Gensler:
On behalf of the New England Convenience Store Association, I am writing to submit these comments regarding the regulatory initiatives for the Dodd-Frank Act. Over last summer, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act which included significant changes to the derivatives market. In particular, Dodd-Frank moved a greater number of derivatives transactions toward exchange trading, with an additional emphasis on packaging such transactions through clearinghouses. These changes were intended to create greater transparency and competition in the derivatives market after a period of financial crisis that threatened the U.S. economy.
While Dodd-Frank gave great direction, it also empowered regulatory bodies such as yours to draft rules that would carry out the intent of the Congress and to provide detailed directions for the actual application of the law.
NECSA is aware that the CFTC and the SEC have proposed a rule that addresses possible conflicts of interests in clearinghouse ownership. While the intent of the proposed rule has a good purpose, there is one provision that concerns our members and likely would not prevent the concentration of ownership of a clearinghouse by the banks who are dealers.
In particular, one of the proposed provisions contains that a clearing facility may choose to limit the ownership voting interest of any participant, such as a dealer bank, to no more than 5 percent of the total, with no limitation on aggregate ownership by banks. This appears to be an alternative to a limitation of 20 percent of voting interest by any single institution and 40 percent of voting interest owned collectively by all institutions.
It is our understanding that the 5 percent limitation would still allow a group of dealer banks to gain control of a clearing facility. This could mean that a minimum of 11 banks, owning 5 percent each, could attain majority voting ownership and continuing to pose the obstacles to increased clearing that Dodd-Frank is intended to overcome. Already according to the Comptroller of the Currency, more than 95 percent of derivatives activity is controlled by the top five dealer banks. Currently banks control many clearinghouses and using the 5 percent rule, would allow them to continue to do so with only minor adjustments to their ownership stakes. Concentrated ownership can lead to derivatives transactions not being cleared, meaning increased fees paid to the owner banks and little transparency and competition.
Also, it appears that the proposed ownership restriction would be even less effective in the case of exchange ownership, allowing 5 dealers to own an exchange or swap execution facility outright. This loophole along with the 5 percent alternative limit for clearinghouses would likely harm the true intent of the Dodd-Frank derivative reforms.
NECSA is asking that the commission eliminate the 5 percent alternative, to ensure that banks cannot strategically use it to continue their anticompetitive behavior including dominance of clearing facilities. We additionally ask that you consider a rule to extend the 20 percent/40 percent ownership limitations to exchanges and swap execution facilities as well as clearinghouses.
These measures would help ensure transparency and accountability as was the objective of the Dodd-Frank legislation.
NECSA appreciates the opportunity to submit these comments and the work of your agency. Thank you for your consideration.
Regards,
Diana O’Donoghue
Executive Director
