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Better Markets Applauds the CFTC's Bipartisan Action to Limit Dealer Domination of the Derivatives Markets

FOR IMMEDIATE RELEASE
Thursday, December 19, 2019
Contact:  Christopher Elliott, 202-618-6433, press@bettermarkets.com

Washington, D.C.  –  Dennis M. Kelleher, Chief Executive Officer of Better Markets, issued the following statement with respect to the Commodity Futures Trading Commission’s (CFTC) proposed elimination of post-trade name give-up, a practice that for too long has enabled dealer domination of the swaps markets by unnecessarily identifying initial counterparties to cleared swaps on swap execution facilities (SEFs):

“We applaud the CFTC’s unanimous proposal to prohibit SEFs from disclosing the identities of initial counterparties to anonymously executed, cleared swaps.  That practice, called ‘post-trade name give-up,’ is one of many legacy mechanisms used by Wall Street’s handful of gigantic derivatives dealers to dominate the derivatives markets and kill legitimate competition.

“Although the proposed prohibition applies only to some SEF-executed derivatives that are intended to be cleared and does not apply to all SEF-executed cleared swaps, the proposal is a very important and long-overdue initial step.  It will begin to promote fair competition among SEFs and market participants and encourage liquidity formation by preventing trade information from being strategically gleaned and used by the dominant dealers.

“CFTC Chairman Tarbert, Commissioner Behnam, and Commissioner Berkovitz jointly explained the rationale for the proposal well:

We believe that the Proposal serves two key objectives of the Commission’s governing statute: (1) promoting swaps trading on SEFs and (2) promoting fair competition among market participants, including through impartial access to a SEF’s trading platform.  The Proposal could also help attract a diverse set of additional market participants who have been deterred from trading on these platforms by the practice of post-trade name give-up, but remain interested in bringing liquidity and competition to SEFs if there is a level playing field.

“We have advocated for the proposed prohibition on name give-up for precisely the reasons noted by CFTC Chairman Tarbert and Commissioners Behnam and Berkovitz.  In fact, on page 2 of our recent SEF comment letter, we stated that the practice of post-trade name give-up

  1. Does not support any legitimate risk management objective in connection with cleared, anonymously executed swaps;
  2. Promotes continued access to privileged liquidity by a very small number of dominant swap dealers, contrary to the statutory purposes and core principles of the SEF regulatory framework; and
  3. Deters SEF participation on account of trading advantages provided to dealers that collect and analyze counterparty trading information. 

“The widespread benefits from ending this practice have been frustrated by the five largest domestic derivatives dealers, which are also the five largest taxpayer-backed U.S. banks, because they conduct almost 90% of the current derivatives dealing by banks nationwide.  These largest U.S. banks also dominate the global markets through foreign affiliates, which facilitated much of the roughly $542 trillion in derivatives notional outstanding as of 2017

“According to multiple lawsuits (see a complaint in the U.S. Southern District of New York here), that market power has been ‘wielded like a hammer’ (at 35) and used to steer business away from SEFs that refuse to give-up the identities of their customers post-trade for too long, preventing further development of liquid, diverse, and transparent markets.  The CFTC is right to take initial steps to bring that to a swift end.”

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.

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