Magazine article Modern Trader

DoJ Comments on SEFs

Magazine article Modern Trader

DoJ Comments on SEFs

Article excerpt

A comment letter regarding CFTC rules on ownership and governance rules of swap execution facilities (SEF) and designated contract markets (DCM) has been submitted from an unlikely source--the United States Department of Justice (DoJ).

In the letter signed by Assistant Attorney General Christine Varney, the DoJ explains that while it is pleased the CFTC is tackling the issue of ownership and governance; it does not feel the proposed rules go far enough to prevent conflicts of interest and potential monopolies.

"It is not uncommon for the antitrust department to provide comment when they see rule-making or other activity from an agency if they see an anti-trust issue," says Daniel Waldman, partner at Arnold & Porter LLP.

According to the CFTC proposal, DCMs and SEFs would have a 20% limitation on the voting equity or voting power that any single member may control or own. In its letter, the DoJ expresses doubts that this limitation would be effective without an aggregate cap on ownership by enumerated entities.

"The Department is concerned that because the proposed rule does not include an aggregate ownership cap on major derivatives dealers, preserving the opportunity for these powerful entities to achieve majority ownership of DCMs/SEFs, it may not sufficiently protect and promote competition in the industry," the letter says.

The DoJ expresses concerns that three banks or companies could band together to hold the majority share of a DCM or SEF, or that five could hold complete control. …

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