Thursday, October 8, 2009
The Duh Factor
Call me gobsmacked. The SEC has just now called for access to real-time data for OTC swaps and derivatives. The SEC said that the absence of this data "hampered its efforts to investigate potential fraud and market manipulation in OTC derivatives markets" during last year's crisis, according to Securities Industry News. Big Duh. There has been a massive gap in coverage for OTC derivatives for quite some time. Services such as Markit and Reuters were trying to close some of the gap by offering derived or calculated prices, but so many instruments were customized and one-offs that it would be impossible to get data on them. One of the ways to get better access to OTC prices and deals would be to automate them and send them through a clearing house. This was going to be one of the major foundations of new post-crisis regulation. But wait... Barney Frank, the chairman of the U.S. House of Representatives Financial Services Committee said Wednesday he does not expect Congress will require all end-users of OTC derivatives to use central clearinghouses. He said that anyone using derivatives for 'risk management' purposes should be exempt. This means no one WON'T be exempt. CFTC Chairman Gary Gensler told reporters after Wednesday's hearing: “As just about all swaps could be defined as being used for risk management purposes, we’re concerned that unintentionally the category of ‘major swap participant’ could have been narrowed so significantly, or even to a null set." Banks 1, US Government 0. The pressure from the banks' lobbyists must have been more than Mr. Frank could handle. If anyone was in any doubt who really runs this country, doubt no more.