Nine bankers will pay the price for blocking Citadel’s Ken Griffin and the Bank of NYMellon from participating in a decision-making committee that, according to Louise Story at the New York Times, controls the expensive exchange of derivatives, a wide ranging term that means basically anything that isn’t a share of a stock, but can still be traded. (Futures, swaps, options, calls, puts, for example – all derivatives.)
The nine bankers just lost their privacy via the New York Times article. The article implies that they are Thomas J. Benison of JPMorgan, James J. Hill of Morgan Stanley, Athanassios Diplas of Deutsche Bank, Paul Hamill of UBS, Paul Mitrokostas of Barclays, Andy Hubbard of Credit Suisse, Oliver Frankel of Goldman Sachs, Ali Balali of Bank of America, and Biswarup Chatterjee of Citigroup.
The NYT would have you believe that they sit on a dictatorial rule-making committee at ICE, a clearinghouse that processes “complicated” derivatives trades, and they, along with a tight-knit group of bankers and the heads of clearinghouses, exchanges, and a small company called Markit, rip you off, fee by fee.
Through the committee, the article says, the nine help make rules that essentially lock in their employers as middlemen who collect fees for matching buyers with sellers. If you, or one of the companies you pay to say, heat your house, is a buyer or a seller – those fees will be paid by you.
Thus the bankers are at it again. Stealing from the little guy and building a moat around the castle so that no one can get in to change the system so that everyone benefits.
That’s just one example of how the article is pretty one-sided. There’s been a lot of scepticism raised about what it says, because, of course the committee makes rules that are in the interest of its members. And of course Griffin and those advertising this claim are self-interested parties too.
Instead, in the article, Griffin and BNY Mellon are made to look like heros fighting for the little guy and getting squashed by the secret elite squad of super brokers. BNYMellon was banned from helping change the plutocracy for an “arbitrary” reason they say; just because they don’t have as much money in derivatives as JPMorgan and the others. Ken Griffin was blocked because the market wasn’t interested in his idea – a vague claim that is intended to remind readers who “the market” is made up of, the elite derivatives team.
So, after he lost a bitter battle with the ruling elite when he tried to partner with CME, an exchange, to create their own clearinghouse with an electronic derivatives exchange, Citadel’s billionaire hedge fund manager, Ken Griffin, has given up the hope of fixing the system.
(But remember that Griffin has been trying to build his own investment bank, Citadel Securities, for years now. Running a clearinghouse with CME would have been advantageous for his bank much like ICE is for the nine banks with representatives on its risk committee. Citadel Securities has since had a lot of trouble getting a solid business going — maybe the failed exchange is part of the reason.)
Instead, he’s teamed up with BNYMellon to take down the derivatives overloads via the NYT.
First, he exposes the role the people on risk committees will have in shaping new reforms.
The one entity that wouldn’t necessarily profit from the price transparency is the elite banking industry, says Griffin. But because the risk committees will help decide much of the new Dodd-Frank rules about derivatives trading, the banks that are well-represented on the committees will have their interests protected.
Griffin, Bank of NYMellon, and the others who have been kept out of this “inner circle” close to the rule-making have an obvious axe to grind. They want in, and making the committee seem like a secretive unit of price-fixing colluders that needs a couple of white knights interested in public’s stake could help them get there.
As such, according to the NY Times, Griffin puts the cost to the public (and the profits reaped by the banks) by a rough estimate, in the tens of billions of dollars, saying that electronic trading would remove much of this “economic rent the dealers enjoy from a market that is so opaque.”
“It’s a stunning amount of money,” Mr. Griffin said. “The key players today in the derivatives market are very apprehensive about whether or not they will be winners or losers as we move towards more transparent, fairer markets, and since they’re not sure if they’ll be winners or losers, their basic instinct is to resist change.”
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