Regulatory Assassins

I have written and talked much this year about the central clearing of OTC derivative products and have mainly taken a shaking head stance of sheer disbelief of what the politicians and the regulators are doing to this part of financial services. Why would I take any other view? Well, my point of view predetermines that the attempts to reform OTC through central clearing have the objective of creating a better and more secure market in the future. What if I am wrong? What if the real story is far simpler and more frightening? What if the real objective is to kill the business entirely!

In the minds of the tax paying general public, the evils they face today, started with banks gambling, using their money on trading OTC financial instruments a business which they don’t understand. An easy move then, for Politicians to take radical action, to be seen to be trying to prevent the very thing, which the media proposed as the cause of the global economic decline.  It’s even easier still, for the politicians to get the Regulators to draw up plans to resolve the problem by bunging OTC into central clearing.

As I have heard many times from people who should know better “Clearing coped with Lehman so why not OTC!” This is a statement of profound stupidity that I won’t attempt to go into. Rather let’s ask the question, why is it that people and organisations that should know better, are allowing OTC to go into central clearing?

The question is who wins if OTC is limited, killed or moved underground into countries that are outside of regulatory jurisdiction?

Mainly OTC volume of any size emanates from the middle and Far East therefore any restrictions in Europe and the USA are not going to stop this business, rather contain it in areas regulations can’t reach. What’s certain is OTC will survive, if not in its present form.

So do the politicians and regulators know what they are doing? It’s a question I keep asking myself and I keep coming up with negative answers. Can anyone explain the benefits of this current push into clearing? Or is it still a question the assassins in Parliament would prefer to not answer.