Dodd-Frank Rollback, Pandit's Return, as JPM Turns

Receiving Wide Coverage ...

Deriving Pleasure: Too many price quotes will increase trading costs and reduce liquidity. That is the curious (if not spurious) story megabanks successfully stuck to in lobbying financial regulators to water down a key provision of the Dodd-Frank Act aimed at governing derivatives trading. The result was a 4-to-1 vote by the Commodity Futures Trading Commission on Thursday in favor of reducing the number of price quotes buyers must seek before conducting swaps trades from the originally proposed five down to two. "A paradigm shift" is how CFTC Chairman Gary Gensler (formerly of Goldman Sachs) characterized the result. "The bare minimum," quipped CFTC Commissioner Bart Chilton, a Democrat. Republicans had pushed for even fewer restrictions. Bloomberg quoted Sandler O'Neill & Partners' analyst Richard Repetto splitting the difference: The rules represent "the start of a process that could eventually lead to a seismic change in trading of over-the-counter derivatives ... It is a switch from an opaque, bilateral market to something where there is some price transparency and a more open and automated market." Any way you size them up, the trading regulations are the bid by the CFTC and Securities and Exchange Commission to curb risk and increase transparency in the $633 trillion (notional value) swaps market, which has previously operated in an unregulated, over-the-counter fashion. Critics charge that market and its Wild West structure were major contributors to the 2008 financial crisis. The new rules require at least two quotes before trades are conducted and establish trading platforms that will require all prices to be made public after a deal is done. As too many quotes and too much liquidity have commoditized the trading of stocks and bonds, Wall Street has turned to murkier markets to fuel profits. The new rules may erode bank profits by reducing banks' ability to carry out bilateral trades directly with other banks and clients. The trading, clearing and other rules may cost JPMorgan Chase $1 billion to $2 billion in revenue, Bloomberg said, referencing a Feb. 26 bank presentation. Five banks dominate the U.S. swaps business. JPMorgan Chase (JPM), Goldman Sachs (GS), Bank of America (BAC) , Citigroup (NYSE:C) and Morgan Stanley (MS) controlled 95% of cash and derivatives trading for U.S. bank holding companies at the end of last year, Bloomberg reports, citing the Office of the Comptroller of the Currency. Wall Street Journal, New York Times, Bloomberg

He's Baaack: Hedge fund centi-millionaire Vikram Pandit just can't seem to resist a chance to be a commercial banker. The former Citigroup chief, who was fired by the firm's independent chairman last year (and you were wondering why JPMorgan Chase's Jamie Dimon doesn't want to give up the role?), is investing in Indian financial services group JM Financial. The company said it's applying for a banking license and will nominate Pandit as non-executive chairman. He'll also help JM Financial create a fund to buy distressed assets and expand its lending and financing businesses, Bloomberg reported. "I continue to believe in the long term growth prospects of India," Pandit said in a statement. "JM Financial can provide the banking and financial services that the country needs." For Pandit, the JM Financial investment represents a reunion with Hari Aiyar and other former colleagues from his days at Morgan Stanley and Old Lane Partners, the investment firm he founded and sold to Citigroup. It also represents an opportunity to make a statement; Pandit had placed heavy strategic bets on emerging markets at Citi prior to his ouster. Financial Times, Bloomberg

Wall Street Journal