Conflicts of Interest in Derivatives Clearing

[Excerpt] The financial crisis implicated the over-the-counter (OTC) derivatives market as a source of systemic risk. In the wake of the crisis, lawmakers sought to reduce systemic risk to the financial system by regulating this market. One of the reforms that Congress introduced in the Dodd-Frank Act (P.L. 111-203) was mandatory clearing of OTC derivatives through clearinghouses, in an effort to remake the OTC market more in the image of the regulated futures exchanges. Clearinghouses require traders to put down cash or liquid assets, called margin, to cover potential losses and prevent any firm from building up a large uncapitalized exposure, as happened in the case of the American International Group (AIG). Clearinghouses thus limit the size of a cleared position based on a firm’s ability to post margin to cover its potential losses. As lawmakers focused on clearing requirements to reduce systemic risk, concerns also arose as to whether the small number of large swaps dealers in existence—mostly the largest banks—might influence clearinghouses or trading platforms in ways that could undermine the efficacy of the approach. Concerns about conflicts of interest in clearing center around whether, if large swap dealers dominate a clearinghouse, they might directly or indirectly restrict access to the clearinghouse; whether they might limit the scope of derivatives products eligible for clearing; or whether they might influence a clearinghouse to lower margin requirements. Trading in OTC derivatives is in fact concentrated around a dozen or so major dealers. The Office of the Comptroller of the Currency (OCC) estimated that, as of the third quarter of 2010, five large commercial banks in the United States represented 96% of the banking industry’s total notional amounts of all derivatives; and those five banks represented 81% of the industry’s net credit exposure to derivatives. The first group of Troubled Asset Relief Program (TARP) recipients included nearly all the large derivatives dealers. As a result of the high degree of market concentration, the failure of a large swaps dealer still has the potential to result in the nullification of tens of billions of dollars worth of contracts, which could pose a systemic threat. A 2009-proposed amendment proposed to H.R. 4173, which passed the House, would have limited ownership interest and governance of the new derivatives clearinghouses by certain large financial institutions and major swap participants. Sections 726 and 765 in the final version of the Dodd-Frank Act mandate that the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC), respectively, must adopt rules to mitigate conflicts of interest. However, it allowed the agencies to decide whether those rules include strict numerical limits on ownership or control. In the CFTC’s proposed rules to mitigate conflicts of interest, published on October 18, 2010, and on January 6, 2011, the CFTC did choose to adopt strict ownership limits, along the lines of the Lynch amendment. The SEC’s proposed rule, published on October 13, 2010, does the same. This report examines how conflicts of interest may arise and analyzes the measures that the CFTC and SEC proposed to address them. It discusses what effect, if any, ownership and control limits may have on derivatives clearing; and whether such limits effectively address the types of conflicts of interest that are of concern to some in the 112th Congress. These rulemakings may interest the 112th Congress as part of its oversight authority for the CFTC and SEC. Trends in clearing and trading derivatives, and the ownership of swap clearinghouses, are discussed in the Appendix

Key Issues in Derivatives Reform

Financial derivatives allow users to manage or hedge certain business risks that arise from volatile commodity prices, interest rates, foreign currencies, and a wide range of other variables. Derivatives also permit potentially risky speculation on future trends in those rates and prices. Derivatives markets are very large—measured in the hundreds of trillions of dollars—and they grew rapidly in the years before the recent financial crisis. The events of the crisis have sparked calls for fundamental reform. ... This report analyzes the issues of derivatives clearing and margin and end users, and it discusses the various legislative approaches to the enduser issue.

Alien Registration- Miller, Rena (Bangor, Penobscot County)

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The relationship between racial discrimination induced anger and smoking among Black adolescents.

This study explored whether a relationship exists between smoking behaviors and racial discrimination induced anger among Black adolescents. Participants consisted of 134 Black adolescents from 14 to 18 years of age who frequently visited a recreation center in the Northeast. Forty-four participants were males and 90 were females. All participants were administered a modified version of the CAGE questionnaire, a background information questionnaire, and a measure designed to assess the extent to which they feel angry because they had been discriminated against. Only age was found to be predictive of scores on the CAGE. Only gender was found to be predictive of smoking frequency. The Black Anger Measure (BAM) was significantly correlated with smoking behaviors. Some implications for theory, research and practice are suggested

111th Congress

This report summarizes derivatives legislation that was considered but not enacted by the 111th Congress, and it provides background on the derivatives market

The Dodd-Frank Wall Street Reform and Consumer Protection Act: Title VII, Derivatives

This report describes some of the requirements placed on the derivatives market by the Dodd-Frank Act, which provides exceptions to the clearing and trading requirements for commercial end-users, or firms that use derivatives to hedge the risks of their nonfinancial business operations

114th Congress

This report discusses the scope of the trade-based money laundering (TBML) problem and analyzes selected U.S. government policy responses to address TBML. It includes a listing of hearings in the 114th Congress that addressed TBML

New Optimal Sensor Suite for Ultrahigh Temperature Fossil Fuel Applications

Accomplishments during Phase II of a program to develop and demonstrate photonic sensor technology for the instrumentation of advanced powerplants are described. The goal of this project is the research and development of advanced, robust photonic sensors based on improved sapphire optical waveguides, and the identification and demonstration of applications of the new sensors in advanced fossil fuel power plants, where the new technology will contribute to improvements in process control and monitoring. During this program work period, major progress has been experienced in the development of the sensor hardware, and the planning of the system installation and operation. The major focus of the next work period will be the installation of sensors in the Hamilton, Ohio power plant, and demonstration of high-temperature strain gages during mechanical testing of SOFC components

Regulation of hepatic glucose production and AMPK by AICAR but not by metformin depends on drug uptake through the equilibrative nucleoside transporter 1 (ENT1)

This is the author accepted manuscript. The final version is available from Wiley via the DOI in this record.Aim: Recently we have observed differences in the ability of metformin and AICAR to repress glucose production from hepatocytes using 8CPT-cAMP. Previous results indicate that besides activating protein kinase A, 8CPT-modified cAMP analogues suppress the Nitrobenzylthioinosine (NBMPR)-sensitive equilibrative nucleoside transporter ENT1. We aimed to exploit 8CPT-cAMP, 8CPT-2-Methyl-O-cAMP and NBMPR, which is highly selective for a high-affinity binding-site on ENT1, to investigate the role of ENT1 in the liver specific glucose lowering properties of AICAR and metformin. Methods: Primary mouse hepatocytes were incubated with AICAR and metformin in combination with cAMP analogues, glucagon, forskolin and NBMPR. Hepatocyte glucose production (HGP), and AMPK signalling were measured and a uridine uptake assay with supporting LC-MS was used to investigate nucleoside depletion from medium by cells. Results: AICAR and metformin increased AMPK pathway phosphorylation and decreased HGP induced by dibutyryl cAMP and glucagon. HGP was also induced by 8CPT-cAMP, 8CPT-2-Methyl-O-cAMP and NBMPR; however, in each case this was resistant to suppression by AICAR but not metformin. Cross-validation of tracer and mass spectrometry studies indicates that 8CPT-cAMP, 8CPT-2-Methyl-O-cAMP and NBMPR inhibited the effects of AICAR at least in part by impeding its uptake into hepatocytes. Conclusions: We report for the first time that suppression of ENT1 induces HGP. ENT1 inhibition also impedes uptake and effects of AICAR but not metformin on HGP. Further investigation of nucleoside transport may illuminate a better understanding of how metformin and AICAR each regulate HGP.L.L. was supported by a Cunningham Trust PhD studentship awarded to G.R. and C.B. G.R. acknowledges additional support from the MRC (MR/K012924/1). This work was part-funded by a Tenovus Scotland grant to C.B, who is a recipient of a Diabetes UK RD Lawrence Fellowship (13/0004647)

Identification of B6SJL mSOD1(G93A) mouse subgroups with different disease progression rates

Disease progression rates among patients with amyotrophic lateral sclerosis (ALS) vary greatly. Although the majority of affected individuals survive 3-5 years following diagnosis, some subgroups experience a more rapidly progressing form, surviving less than 1 year, and other subgroups experience slowly progressing forms, surviving nearly 50 years. Genetic heterogeneity and environmental factors pose significant barriers in investigating patient progression rates. Similar to the case for humans, variation in survival within the mSOD1 mouse has been well documented, but different progression rates have not been investigated. The present study identifies two subgroups of B6SJL mSOD1(G93A) mice with different disease progression rates, a fast progression group (FPG) and slow progression group, as evidenced by differences in the rate of motor function decline. In addition, increased disease-associated gene expression within the FPG facial motor nucleus confirmed the presence of a more severe phenotype. We hypothesize that a more severe disease phenotype could be the result of 1) an earlier onset of axonal disconnection with a consistent degeneration rate or 2) a more severe or accelerated degenerative process. We performed a facial nerve transection axotomy in both mSOD1 subgroups prior to disease onset as a method to standardize the axonal disconnection. Instead of leading to comparable gene expression in both subgroups, this standardization did not eliminate the severe phenotype in the FPG facial nucleus, suggesting that the FPG phenotype is the result of a more severe or accelerated degenerative process. We theorize that these mSOD1 subgroups are representative of the rapid and slow disease phenotypes often experienced in ALS