UPDATE 1-U.S. House bill would limit clearinghouse ownership

WASHINGTON Thu Dec 10, 2009 10:57pm EST

WASHINGTON Dec 10 (Reuters) - The U.S. House of Representatives on Thursday amended a sweeping financial reform bill to limit financial firms to 20 percent ownership stakes in clearinghouses for over-the-counter derivatives.

The amendment is designed to avoid possible conflicts of interest at financial firms that also trade derivatives, but has been criticized by NYSE Euronext NYX.N, LCH.Clearnet, BATS Global Markets and other firms partnered with banks.

They have said "overly restrictive" ownership limits would hurt development of derivatives clearinghouses.

"My amendment would prevent those big banks and firms like AIG from taking over the police station," Democratic Representative Stephen Lynch, who put forward the amendment, said during floor debate.

The overall reform bill, still pending a final House vote, calls for sending more OTC derivatives trades through clearinghouses to increase transparency and accountability.

NYSE Euronext, which runs the New York Stock Exchange, recently sold a big stake in its U.S. derivatives venue to five banks including Goldman Sachs (GS.N) and Morgan Stanley (MS.N).

LCH.Clearnet, Europe's top independent clearinghouse, is majority owned by its users.

Exchange firm Nasdaq OMX (NDAQ.O) supported the Lynch amendment.

Democratic Representative Mike McMahon said during debate that the proponents of this amendment are using the legislative process to promote one business model over another.

A handful of Wall Street giants dominate OTC derivatives dealing -- Goldman Sachs, JPMorgan Chase (JPM.N), Citigroup (C.N), Bank of America (BAC.N) and Morgan Stanley. LINKS > US House closer to financial rules overhaul.. [ID:nN10471458] (Reporting by Kevin Drawbaugh and Rachelle Younglai; Editing by Neil Fullick)

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