D.E. Shaw & Co. and Citadel LLC are putting renewed pressure on the main U.S. derivatives regulator to reduce Wall Street banks’ dominance of the $700 trillion swaps market.
At a Commodity Futures Trading Commission event in Washington Thursday, the hedge funds urged Chairman Timothy Massad and his fellow commissioners to ensure that they can trade on the same platforms as banks without revealing their identities. Banks currently have an advantage by knowing not only the price of a trade but who’s behind it, the asset managers said.
The CFTC has been trying to push derivatives trades onto new venues set up under the Dodd-Frank Act, which required that regulators make the market more competitive and transparent. Still, the landmark 2010 law hasn’t adequately leveled the playing field, said Darcy Bradbury, a managing director at D.E. Shaw.
“We have ended up with a bifurcated market,” she said. “The regulator really needs to step in.”
Bradbury, whose firm manages $36 billion, joined Stephen Berger, director of government and regulatory policy at Citadel, and Michael O’Brien, director of global trading at Boston-based Eaton Vance Corp. mutual fund, in calling for changes.
Swap-execution facilities set up since the 2008 financial crisis include venues run by ICAP Plc, Cie. Financiere Tradition SA and Bloomberg LP, the parent company of Bloomberg News.
Asset managers say trading remains a two-tiered market: banks trade among themselves in one tier, and banks trade with their clients in the other. Ending the two-tier status will help encourage traditional buyers of derivatives to participate on the platforms and make the market more competitive, the Managed Funds Association, a hedge-fund lobbying group, said in a paper this week.
Rana Yared, managing director at Goldman Sachs Group Inc., said that not all parts of the swaps-market are ready for anonymity. For what’s known as packaged trades, in which a market participant combines multiple derivatives or other assets, it’s important that identities are disclosed, she said.
“There is substantial risk on those package trades,” Yared said.
In a November speech, Massad said the agency was looking into the practice of traders disclosing their identities, called “name give-up.” Massad also said last month that the agency was considering changes to rules for swap-execution facilities.
Massad didn’t comment on the matter during the discussion Thursday.
Steve Adamske, a CFTC spokesman, said the issue is still under discussion at the agency and that no decisions have been reached.