MF Global Holdings Ltd., Hexagon Securities LLC and at least 19 other financial firms are pressing regulators to force swaps clearing houses to lower entry barriers in order to improve competition in a $605 trillion derivatives market dominated by the world's biggest banks.
Brokers formed an association last month that hired a Washington law firm to pursue the issue with lawmakers and regulators, said Mike Hisler, a partner in New York-based Hexagon. They also seek tougher conflict-of-interest laws to ensure that a bank's derivatives desk does not influence clearing house decisions that could shut out competitors.
The debate about access comes as Congress seeks to give regulators the power to dismantle failing financial firms that are deemed to pose a systemic threat to the economy. Limiting the number and types of firms that can join derivatives clearing houses concentrates too much risk there, the excluded firms say. It also blocks competitors to the largest U.S. banks, which made an estimated $28 billion on derivatives trading last year.
Only firms with a net worth of at least $5 billion are allowed to belong to the largest credit-default swap clearing house, Intercontinental Exchange Inc.'s ICE Trust. A CME Group Inc. venture has set a $500 million minimum, recently raised from $300 million. Both demand expertise in the market, including swaps-trading desks.