NYSE: Clearing, Reporting Are Key To OTC Derivatives Reform

Clearing over-the-counter derivative trades and tightening reporting requirements are more important than moving swaps onto listed trading platforms, the head of exchange operator NYSE Euronext (NYX) said Tuesday.

"It is less important how they are traded than whether they are centrally cleared and how transparently they are reported," NYSE Chief Executive Duncan Niederauer told reporters, noting that guaranteeing trades through clearing and giving regulators more data will address many concerns raised by the financial crisis.

"I don't know how much more the problem will be solved by listing them on an exchange," he added. Niederauer is the latest major voice in the financial industry to downplay the importance of a major provision in the Obama administration's derivatives proposal that would force all standard derivative products onto exchanges or equivalents to help improve price transparency.

Such a provision is noticeably absent from Rep. Barney Frank's own proposal, which the House Financial Services Committee will vote on as early as Wednesday.

Instead, Frank's bill only provides incentives to move products onto regulated platforms. It does mandate the clearing of standard derivatives like the Obama plan, but provides clearing exemptions to a broader swath of companies.

Frank signaled in a hearing on his bill last week that he is leaning against a mandate on exchange trading despite a plea from the chairman of the U.S. Commodity Futures Trading Commission who said he thinks the exchange-trading of standard products is an essential part of the regulatory revamp. The Securities and Exchange Commission, however, disagreed, saying it too thinks clearing requirements are far more important.

"I don't think it makes a lot of sense to put all of these products onto an exchange," Niederauer said. "That should be the last step, not the first step."

NYSE is not the only major U.S. exchange to voice concerns against mandating the exchange-trading of derivatives. CME Group Inc (CME), the world's largest futures exchange, has also warned against forcing products onto exchanges even though it stands to gain new business.

Niederauer said Tuesday that his company currently does not stand to benefit from a bill requiring swaps clearing because NYSE does not own a clearinghouse.

NYSE is, however, involved in a joint venture with the Depository Trust & Clearing Corp. to create New York Portfolio Clearing, which will clear cash Treasurys and other derivatives products. Officials with the exchange operator have said that the venture could eventually clear interest-rate products, which represented more than $400 trillion worth of over-the-counter business in 2008.

- By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; [e-mail].

(Jacob Bunge in Chicago contributed to this article.)