![]() Central clearing removes the credit risk of trades that ties investors to the largest banks, and opens markets to electronic trading that allow any participants to trade with another. “I think they were probably implicitly coerced by their bankers.”įrank sees many of the arguments against price transparency as a disguise for the banks’ own interests. “I did not hear from that many end-users,” Frank said, though one large user of commodities derivatives told him that he did not need a lot of what the banks were arguing for. “Maybe I have more confidence in the free market and competition than some of these guys,” he said.įrank is similarly dismissive of arguments he heard that price transparency is impractical to implement, would harm liquidity, and hurt smaller companies that rely on derivatives to hedge their businesses, often referred to as end-users. The markets will see more transparency, Frank said, and with that will come more entrants. where else do they think we shouldn’t have competition? The hypocrisy here is just stunning,” said Frank, adding that many businesses see competition as a “spectator sport.” Migration to this new type of trading was expected to happen quickly after the 2008 financial crisis, but encountered strong bank resistance. 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.Īrguments that derivatives are ill-suited to exchange trading fall flat with Frank. The process of implementing rules has been hard fought. They love to see other people engage in it, and cheer for it, but they aren’t so crazy about participating.”įive 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.įrank, 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. “People don’t like competition but people find it very hard to argue against it. ![]() “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. 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. The younger of the two representatives told Frank that public prices would allow people to undercut him. ![]() 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.įrank 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. Barney Frank (D-MA) speaks during the final session of the Democratic National Convention in Charlotte, North Carolina September 6, 2012. ![]()
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