The Zacks Analyst Blog Highlights: JPMorgan Chase, Goldman Sachs Group, Bank
of America, Citigroup and Morgan Stanley
CHICAGO, June 5, 2013
CHICAGO, June 5, 2013 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include JPMorgan Chase & Co. (NYSE:JPM),
The Goldman Sachs Group, Inc. (NYSE:GS), Bank of America Corporation
(NYSE:BAC), Citigroup, Inc. (NYSE:C) and Morgan Stanley (NYSE:MS).
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Here are highlights from Tuesday's Analyst Blog:
Derivatives Trading: Keeping Behind the Veil?
Big banks are on top again. About a fortnight ago, the industry won a major
victory after the Commodity Futures Trading Commission agreed to soften
standards for derivatives trading for banks.
The rules as envisioned earlier required that asset managers contact a minimum
of five banks when determining a price for a derivatives contract. But now the
commission has agreed to lower the number of banks required to two.
This number will increase to three by 2014, but many market watchers believe
that even this number would be too low. Then there is the skepticism about
rules expected in the future never coming into effect.
The market for derivatives is worth nearly $700 trillion. A group of five
banks account for nearly all, in fact in excess of 90%, of derivatives
contracts: JPMorgan Chase & Co. (NYSE:JPM), The Goldman Sachs Group, Inc.
(NYSE:GS), Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C)
and Morgan Stanley (NYSE:MS).
The original regulations were part of the reforms required by the Dodd-Frank
legislation. The intent was to increase transparency and competition in the
derivatives market. It is widely believed that the dominance of a few large
players was one of the major reasons of the 2008 crisis. The Dodd-Frank
legislation outlines a system where derivatives will be traded on "swap
execution facilities" which will be similar to equity and futures exchanges.
Additionally, the original set of rules required trading to be conducted on
open electronic platforms. But the final rules allow much of the discussion
over prices of derivatives to be conducted over the phone. This will make it
even tougher to monitor these negotiations.
Many market watchers believe that the new set of regulations has returned the
system to conditions which existed just before the crisis. But this may not be
The deal is an outcome of fierce negotiations within the commission which
consists of five members. The chairman of the commission, Gary Gensler, was in
favor of a more stringent set of rules. But in the absence of a third vote, he
had to give in to opposing members and Mark Wetjen, who, though a fellow
Democrat, is batting on behalf of the big banks.
Wetjen was of the view that the need to consult five banks was arbitrary.
While supporting the two-bank requirement, he said this would not prevent
asset managers from asking for additional quotes. In fact, other regulatory
bodies have posed far easier standards for derivatives markets.
Gensler, for his part, has argued that despite the relaxation in regulations,
derivatives will have to be traded on regulated platforms of the like where
stocks are traded. Additionally, other regulations will come into force which
will make substantial portions of derivatives subject to regulatory scrutiny.
The only issue here is that Gensler is scheduled to depart from the commission
later this year. And the White House has provided no indications that it will
provide him with another term.
Some officials are of the view that the next incumbent may also be able to
complete the pro-reform Gensler's agenda. Also, Gensler has announced June 30
as the deadline for finishing the process he has started.
But Wetjen believes that his efforts were directed at providing the markets
with increased flexibility. This would also mean there would be greater
freedom to market participants.
However, Wetjen has his critics, who are not in favor of easier regulations,
saying they work against the transparency and increased competition which the
Dodd-Frank legislation had envisaged. The jury is out on whether Gensler will
be able to complete his agenda. In that case, the reforms put forth by
Dodd-Frank will remain far from complete.
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