New US rules to decide fate of noisy swap brokers

Tue Jan 29, 2013 12:59am EST
 
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By Douwe Miedema

NEW YORK Jan 29 (Reuters) - Twenty casually clad men crowd around a screen at derivatives broker GFI, shouting prices at each other and to clients on the phone.

It is one of the noisiest parts of a male-dominated trading floor where shoeshiners crouch in a corner, smells waft as caterers bring around food, and one man gets a back massage at his desk.

At rival ICAP, a huge whiteboard on a wall has names of banks scribbled all over it, with prices of trades behind them. Every so often, a trader gets up, erases a number, and adds a new one with a marker pen.

Even as regulators around world are bringing the opaque and clubby $630 trillion derivatives business into the open, there will likely remain vestiges of old-school trading practices such as brokering deals over the phone.

U.S. regulators had originally limited "voice broking" in a proposal issued in early 2011.

The thought was that the practice - in which brokers work the phones to match buyers and sellers of often thinly traded and complex financial products - runs counter to efforts to shed light on so far unregulated derivatives.

But the industry fought back, arguing that these phone calls do not give rise to shady deals. They also contend that many of these derivatives deals are so customized that they need a human touch, not just an electronic execution of a trade.

The brokers are expressing hope that the top U.S. derivatives regulator - the Commodity Futures Trading Commission (CFTC) - has listened, and is now poised to soften the restriction on voice broking in the coming weeks.   Continued...