A Secretive Banking Elite Rules Trading in Derivatives

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

¶ Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.

¶ In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

¶ The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.

¶ Banks’ influence over this market, and over clearinghouses like the one this select group advises, has costly implications for businesses large and small, like Dan Singer’s home heating-oil company in Westchester County, north of New York City.


http://www.elitetrader.com/vb/thread.php?s=&action=newthread&forumid=44

 

i worked on the cds/loan desk of a major on wall st. its not a secretive banking elite but it is a very closed circle.

there is a tab in the spreadsheet used as the trade blotter that has a list of every trader in the market with some type of bio info and random comment. "guy is actually an idiot", "french faggot", "take other side always", "shows his hand"

the interesting part is that because the market is made up of so few players, the traders make 3-4 way deals over the phone.

 

I second that - not secret, but "closed".

OTC energy in the late 90's and mid-2000's for me.

Turret system with live direct lines to brokers - and most importantly [incredibly], IMs with an AOL account. Firms like Garban/ICAP and Prebon Yamane do most of their business like this.

It is a "closed" society in only one sense - you have to have established capital lines; 'bona fides' is the term. No broker is going to shop you or show you a market unless they have established your ability to take the trade and make them whole. Brokers have established clientele upon whom they are completely dependent upon, and keeping that client whole and happy to the best of their limited ability is paramount.

Box seats and private tents at the Kentucky Derby.

And in the OTC world, it is a considerable financial hurdle in comparison to regulated futures.

The other point made is right on target - a big commercial only wants to make 3 or 4 deals per day. They don't show 10K futures on-screen or to the pit. It is done about 25 cents away from the market - for size. For a bilateral deal, the broker will conference with each counterparty's legal and accounting reps; typically a fax is exchanged and funds are wired overnight. Many deals are submitted to ClearPort or London Clearing House by the broker - timely enough to satisfy the exchange, but not too timely in order to minimize arbitrage considerations.

 

Hum , here is the link to the whole article :

http://www.nytimes.com/2010/12/12/business/12advantage.html

Established, But Can’t Get In

¶ The Bank of New York Mellon’s origins go back to 1784, when it was founded by Alexander Hamilton. Today, it provides administrative services on more than $23 trillion of institutional money.

¶ Recently, the bank has been seeking to enter the inner circle of the derivatives market, but so far, it has been rebuffed.

¶ Bank of New York officials say they have been thwarted by competitors who control important committees at the new clearinghouses, which were set up in the wake of the financial crisis.

¶ Bank of New York Mellon has been trying to become a so-called clearing member since early this year. But three of the four main clearinghouses told the bank that its derivatives operation has too little capital, and thus potentially poses too much risk to the overall market.

¶ The bank dismisses that explanation as absurd. “We are not a nobody,” said Sanjay Kannambadi, chief executive of BNY Mellon Clearing, a subsidiary created to get into the business. “But we don’t qualify. We certainly think that’s kind of crazy.”

http://www.nytimes.com/2010/12/12/business/12advantage.html?_r=2&hp=&pagewanted=all

 

Some of the things mentioned in this article are a bit silly...

 

But not letting BNY Mellon into this fine club, sounds "crazy"....

 

It's sour grapes, if you ask me... Ken G and BONY both feel slighted by being excluded from the circle of trust.

To some extent, I agree with this article:
http://www.businessinsider.com/thom...ul-hamill-andy-hubbard-oliver-frankel-2010-12

 

You may have read news stories recently where some say we can’t make that deadline, shouldn’t make that deadline, need to hold off until we get more data or better data so that the levels can be calculated with exact specificity. In an idyllic world, that might be fine. Congress, however, gave the agency the earlier implementation date for a reason—so that we put limits in place now, not some later time of our choosing. Additionally, the law provides no such authority for regulators to delay the imposition of these limits. There is no regulatory escape valve.

That hasn’t, however, slowed some folks down. There are creative suggestions for ways around the implementation requirement. Some proffered that the agency formally approve a final rule and consider that step as “implementation” under the law. At the same time, the rule would not make the limits effective until sometime in the future. They essentially propose the agency implement a rule on time without implementing it on time—without making it effective. If that sounds convoluted, it is. That sort of dancing on the head of a legal pin is exactly the variety of Washington-speak that makes folks in our country furious. I’d also bet that those in Congress who wrote the provision would have an opinion on the matter.

http://www.cftc.gov/PressRoom/SpeechesTestimony/opachilton-35.html

Damn implementation. Always hindering the "status quo"...

 

Is this the start of the end of enslavement of all life on earth?

 

No, it's not the end. It's not even the start of the end, but it is, perhaps, the end of the start.

- To paraphrase Winston Churchill, may he forgive me.