Senator Seeks to Limit Banks’ Role in Derivatives

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Senator Seeks to Limit Banks’ Role in Derivatives

New York Times – Senator Sherrod Brown, Democrat of Ohio, is seeking to restrict the Wall Street banks’ ownership of clearinghouses for over-the-counter derivatives. Under his proposed amendment to the financial overhaul bill, the large broker-dealers could be mostly shut out of this potentially lucrative business, raising concerns as to where liquidity would come from to clear the huge inflow of O.T.C. trades expected to hit the open market in the near future.

Mr. Brown’s amendment would restrict shareholder ownership of a clearinghouse by the large banks to 20 percent in total.

The proposal would also prohibit large financial institutions from controlling a majority of the board and would require regulators to set rules for self-dealing. Mr. Brown believes this would help prevent big banks from setting their own rules for their derivatives trades and from tilting the playing field in their favor.

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