04/23/10 - The SDMA - SDMA letter to the US Senate

To the Senate Committee on Banking, Housing, and Urban Affairs:

The Swaps & Derivatives Market Association (SDMA) is a trade group comprised of more than 20 United States based Broker Dealers and Futures Commission Merchants. Our members trade and/or clear credit, equity and commodity products, providing improved liquidity, transparency, and reduced transaction costs to the derivatives marketplace. Our trading and clearing activities are directly responsible for the reduction of systemic risk consistent with the objectives of your proposed legislation.

The SDMA supports the Senate Agricultural Committee’s efforts to bring greater accessibility, accountability, and transparency to the centrally cleared OTC derivatives marketplace.

The SDMA believes that for central clearing to truly work, the Senate Agricultural Committee and the Senate Banking Committee Bills should mandate:

• Regulation of OTC derivative markets to enforce objective standards of capital adequacy, fair dealing, and free competition;
• Open and unfettered access to clearinghouses for all executing broker/dealers, sufficiently capitalized clearing brokers, and institutional market participants;
• Standardized credit default and interest rate swaps must be cleared;
• Expeditious introduction of portfolio margin by the SEC and CFTC to ensure the United States remains competitive with other financial centers, such as the United Kingdom.

Indeed, it is the responsibility of the regulators and legislators to proactively protect all OTC derivative market participants, large and small, from anti-competitive behavior and market manipulation, much like they have historically done in other markets.

To these ends, the bill that passed the Agriculture Committee on April 21st, 2010 is a positive first step. The SDMA would be pleased to discuss methods of bringing even greater transparency,accessibility, and fairness to the derivatives markets through this legislation or otherwise. Critical aspects of this reform include: elimination of the artificial restriction of market making linkage to clearing, incorporation of stronger antitrust language, and prevention of self-certification to ensure the integrity of clearing house board composition and governance.

We look forward to working with the Senate Agricultural Committee and the Senate Banking Committee on these issues of national importance. We seek to ensure fair competition and improved stability of the United States financial system. Our goal is to increase the transparency, safety, and soundness of the financial derivatives marketplace, given its central importance to issuers and investors worldwide.

Sincerely,

Mike Hisler
SDMA Spokesperson