Swap Lobbyists Pushing SEC Version of Trading Rules Over CFTC
Jesse Hamilton and Silla Brush (Bloomberg)
September 9, 2011

“In a match made in Congress, the Securities and Exchange Commission and Commodity Futures Trading Commission are supposed to work in tandem to oversee the $601 trillion swaps market. Now financial companies may be stoking differences between the two in a quest for favorable treatment. Firms including BlackRock Inc., the world’s largest asset manager, have praised the SEC’s approach to a rule meant to curb abuses by swap dealers selling to less sophisticated investors including pension funds, endowments and local governments. Lawmakers told regulators to write the rule after swaps pushed Jefferson County, Alabama, to the brink of bankruptcy.…The SEC version would allow so-called independent representatives to the investors to be ‘entirely financially beholden’ to swaps dealers because the definition of independence is weaker than the CFTC’s approach, said Barbara Roper, director of investor protection for the Consumer Federation of America. Under the SEC proposal, an adviser would be considered independent if it didn’t receive more than 10 percent of gross revenue from the special entity in the previous year. The CFTC proposal would consider dealers to be independent if they don’t have ‘material business relationships’ with special entities. Consumer advocates said the ability to avoid adviser status is a loophole that could allow dealers to dodge extra responsibility in every transaction. ‘Inevitably, the commission’s weaker proposal will be used as leverage by those attempting to undermine the CFTC effort,’ representatives of the Consumer Federation of America and Americans for Financial Reform wrote in an Aug. 29 letter to the SEC. ‘The commission has issued precisely the sort of timid, industry-friendly rules that landed us in the financial crisis.’ The letter said the CFTC should ‘under no circumstances’ bow to the SEC’s version.”