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U.S. swap rollback is a gift to banks, Citadel Securities says

A plan to walk back rules for swap-trading platforms will give big banks a leg up and hurt asset managers looking for better prices and more transparency, according to Citadel Securities, one of the world's biggest trading firms.

The proposals by the Commodity Futures Trading Commission are a rollback and "erode significantly the benefits that investors have enjoyed," Paul Hamill, global head of fixed-income, currencies and commodities distribution at Citadel Securities, said in a Bloomberg TV interview.

"The only constituent I can see that stands to benefit from these proposed rule changes is a handful of large U.S. banks, who just continue to agitate for a re-architecture of legislation and regulation to protect a moat around their business models," Hamill said.

The current rules for trading platforms, enacted under the Dodd-Frank Act, have worked well for investors by cutting costs and increasing competition in the market, Hamill said. Large U.S. banks haven't benefited from the competition, and have been lobbying for years to roll back the rules, he said.

In November, the CFTC proposed scrapping requirements that swap buyers get quotes from three dealers before making a transaction, and that trading platforms make an order book available for all swaps.

Lucrative market

J. Christopher Giancarlo, the agency's chairman and a former swap-brokerage executive, has argued the proposal would free swap-execution facilities from regulatory requirements and make trading more flexible. Giancarlo said Nov. 5 that the facilities shouldn't be forced to serve all market participants, rather that they should treat similar participants in a fair and non-discriminatory way.

Swap-trading historically has been lucrative to big banks because the complex, one-off transactions were done directly with clients instead of on more public trading venues exposed to more competition.

"I don't think there is any investor I've talked to who wants to go backwards," Hamill said.

Bloomberg News