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Better Markets Comment Letter on Post-Trade Name Give-Up on Swap Execution Facilities

On March 3, 2020, Better Markets filed a comment letter commending the CFTC for taking critical initial steps to improve the swaps market structure by prohibiting an anti-competitive and anti-market trading practice, called Post-Trade Name Give-Up. 

In our letter supporting the CFTC’s proposal to prohibit that practice, we explain that it is merely one of many mechanisms used by the largest Wall Street derivatives dealers to prevent competition in the markets and control access to order book liquidity in the Dodd-Frank Act’s new swaps trading venues—swap execution facilities (SEFs). 

The CFTC’s proposal to eliminate the practice would be a critical market improvement, because more than 87% percent of the reported $201 trillion notional in derivatives within the U.S. banking system is already controlled by dealers within just four U.S. bank holding companies.  Each of these four bank complexes also facilitates trading in much of the $640 trillion notional in global derivatives markets through multiple affiliated non-U.S. dealers.  This market power is used to control access to trading on SEFs and influence other commercial practices.  Thus, although SEFs could amend their rulebooks and practices to end the practice of Post-Trade Name Give-Up without regulatory intervention, they are practically unable to do so due to the commercial stranglehold this exceedingly small number of dealers and their affiliates have on SEFs competing for their liquidity. 

As an immediate result, the largest Wall Street dealers have managed to extract trading controls, privileges, and advantages denied to other market participants, which is unfair, contrary to the market structure reforms in the Dodd-Frank Act, and detrimental to liquidity formation.  The ultimate result, however, is that the profits of these dealers are passed as increased costs onto end-users of the markets—like the funds Americans use to save for retirement—the very firms the derivatives markets are supposed to serve.

That is why we commend the CFTC for standing up for Main Street families on this issue, in the face of enormous pressure from the derivatives dealers and their Washington lobbyists, which have visited the CFTC in droves and attempted to use every tactic, including apparently the intimidation of their own clients, to kill this necessary reform. 

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