The Senate officially brought financial reform to the floor
today after a deal was reached to end a three-day Republican
filibuster on the bill, which seeks to overhaul the nation's
financial regulatory system.
"The Wall Street Transparency and Accountability Act of 2010,"
Democrats say, aims to set forth a number of guidelines for
regulation of the financial markets, including ending "too big to
fail" for financial institutions, setting up a consumer financial
protection bureau and regulating financial derivatives.
The table is set. And we, the American public, are all invited to
watch the digestion process unfold before us. It is unclear exactly
how much Republican support the bill will get, although the early
indication is that, unlike the healthcare debate, there is a
foundation of common ground.
At this stage, the bill's prospects are still uncertain, but it is
clear that many of the big banks are not pleased about the prospect
of financial reform. Whatever the merits of the bill may or may not
be, there is a clear opportunity for investors.
A key provision of the legislation, the regulation of financial
derivatives, could deliver a whole new wave of business to a
handful of companies.
As it stands now, many derivatives contracts are traded
over-the-counter, meaning directly between two parties. Many
derivatives, including much-maligned credit default swaps, are
traded this way. The current bill requires that almost all
derivatives be approved by the Commodity Futures Trading Commission
and traded on open exchanges -- the reasoning being that this will
bring transparency to the process and avoid some of the practices
that led to the mortgage crisis.
Put simply, this could be a gold rush for exchange operators like
NYSE Euronext (
. (StreetAuthority CME Group in September 2009, citing its
consistent ability to post operating margins above 50% . . . but
any one of these companies could receive a huge boost.)
These companies earn a fee for each listing on one of its
exchanges, making it essentially a business that thrives on volume.
If a financial institution gets a derivatives contract cleared and
ready to trade, under the current legislation, it will have to go
through one of these companies to do it.
Disclosure: Brad Briggs does not own shares of any security
mentioned in this article.
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