Despite opposition, U.S.'s Barney Frank sees derivatives opening to competition

Tue Sep 17, 2013 2:35pm EDT
 
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By Karen Brettell

NEW YORK (Reuters) - When Barney Frank, former U.S. Democratic Congressman and co-author of the Dodd-Frank 2010 banking legislation, set about reforming the U.S. $300 trillion derivatives markets, he felt the key was to foster competition.

What he discovered, though, was that some in the financial services industry, ostensibly big proponents of free markets, did not necessarily feel the same way.

Frank held a meeting with two representatives from insurance firms at his office in Newton, Massachusetts, to discuss proposals to trade derivatives on exchanges, a shift that would bring price transparency, lower trading costs, and draw in new entrants.

The younger of the two representatives told Frank that public prices would allow people to undercut him. When the famously combative Frank challenged the man, the second, elder insurance attendee quickly jumped in to state that they would not be advancing that argument.

"That was the clincher," that showed the motivation of many firms pushing back against the new rules, Frank said in a recent interview with Reuters. "People don't like competition but people find it very hard to argue against it... They love to see other people engage in it, and cheer for it, but they aren't so crazy about participating."

Five years after the failure of investment bank Lehman Brothers, rules to require central clearing and electronic trading of derivative contracts that Frank, a 30-year Congressman who retired in January, pushed for are finally being implemented.

Frank, along with former Democrat Senator Christopher Dodd were the chief architects of the 2010 Wall Street law aimed at reforming financial services following the 2007-2009 financial crisis which was blamed in part on large bank positions in derivatives.

The process of implementing rules has been hard fought. Banks have slowed and watered down reforms while also pushing for wide exemptions will allow a number of market participants to skirt clearing and trading mandates.   Continued...

 
Rep. Barney Frank (D-MA) speaks during the final session of the Democratic National Convention in Charlotte, North Carolina September 6, 2012. REUTERS/Eric Thayer