* SEC wants to limit ownership in clearinghouses
* CFTC floated similar rules for clearinghouses early Oct.
* SEC proposes new rules for asset-backed securities
(Adds comments, details on SEF, ABS)
By Rachelle Younglai
WASHINGTON, Oct 13 The top U.S. securities
regulator on Wednesday took its first stab at policing the $615
trillion over-the-counter derivatives market with a plan to
mitigate conflicts of interests at venues that will handle the
The U.S. Securities and Exchange Commission voted 5-0 to
propose ownership limits on the swaps trading venues and
clearinghouses, which will assume the risk if one party
The derivatives -- financial instruments companies use to
hedge risk such as interest rates -- have been fingered for
contributing to the worst financial crisis since the Great
"This proposed rule is intended to make these entities less
susceptible to promoting the interests of a few participants to
the potential detriment of others," SEC Chairman Mary Schapiro
said at a public agency meeting.
The SEC and fellow market regulator the Commodity Futures
Trading Commission are crafting dozens of rules to regulate the
opaque market under the Dodd-Frank financial reform bill.
The SEC proposed two plans to crack down on potential
conflicts at clearinghouses whose members could try to limit
which products could be cleared.
Under the SEC's first plan, a clearinghouse member could
only hold up to 20 percent of a clearinghouse. Members
collectively could only be allowed to hold up to 40 percent of
a clearinghouse, and a third of the clearinghouse's board of
directors must be independent.
Under the alternative plan, a clearinghouse member would
only be allowed to own a 5 percent voting stake and the
majority of the venue's board would have to be independent
The SEC's proposal is similar to a plan the CFTC floated
earlier in October, though the securities regulator is pushing
for more independent board directors.
A handful of banks dominate over-the-counter derivatives
dealing, including Goldman Sachs (GS.N), JPMorgan Chase
(JPM.N), Citigroup (C.N), Bank of America (BAC.N) and Morgan
"Those dealers earn significant revenues from their
transactions in an opaque over-the-counter market," Schapiro
The SEC proposal caps ownership in swap execution
facilities, or trading venues for swaps, at 20 percent and
requires a board composed of a majority of independent
SEC commissioners also voted to require swaps done before
the Dodd-Frank Act to be reported to the SEC or a swaps
One type of derivative known as credit default swaps nearly
toppled insurer AIG (AIG.N) and forced the U.S. government to
use billions of dollars in taxpayer funds to prop up the
Policymakers are hoping that forcing most of the swaps onto
exchanges and requiring clearinghouses to clear the financial
instruments will give regulators a view on the market and avoid
a repeat of the 2008-09 financial crisis.
Under the legislation, the SEC must craft more than 100 new
rules for financial players and the equity markets.
At the meeting, the SEC tried to shed more light on
asset-backed securities after those packed with subprime
mortgages plunged in value when the U.S. housing market
The SEC voted 4-1 for a proposal requiring banks and other
issuers of asset-backed securities to review the underlying
assets and then publicly disclose the findings of the review.
Democratic SEC Commissioner Luis Aguilar dissented and said
the SEC should impose a minimum review standard.
"It appears to me that this rule is essentially an
endorsement of the 'anything goes' approach of the past,"
Aguilar said at the meeting.
"I hope that the public and members of Congress will send
the SEC comment letters urging it to adopt a real standard of
review," he said.
Fellow Democratic SEC Commissioner Elisse Walter and
Schapiro indicated that they favored a minimum standard but
said they wanted to input from the public.
The proposal is designed to ensure that investors, banks
and their regulators know what kind of assets are underlying a
complex security such as an asset-backed security linked to
Banks were forced to record billions of dollars in
mortgage-backed security losses during the crisis. The
asset-backed security proposal is open until Nov. 15 for public
comment. The swaps venue proposal is open for 30 days.
(Reporting by Rachelle Younglai and Roberta Rampton, editing
by Dave Zimmerman)