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Alternative Market Briefing

What’s missing in the debate over residual interest income

Thursday, February 28, 2013

Mark Melin, Editor Opalesque Futures Intelligence

While it sounds mundane, the "Residual Interest Income" issue has the potential to literally change the face of the regulated derivatives industry.

In just one line of a massive Dodd Frank bill with unnecessary complexity and obfuscation, large bank interests may complete monopolistic control over the derivatives industry.

This is the point that has been absent from many of the industry comment letters and should be on the radar of government regulators.

To understand, keep the topic simple.

With one line amongst millions of legislative words, government regulators will effectively dis-advantage mid-sized Futures Commission Merchants (FCMs), likely forcing many out of business, which has been widely discussed and commented on. The point missing in discussions is the implications, the "unintended" consequences of how this provides literal control of the futures brokerage industry by a small cartel of banking interests with a Too Big to Fail guarantee.

Monopolistic control over the futures industry is not a new topic. The discussion has always taken shape on the exchange side of the business. Brokerage has not been actively considered in the public discussion, but the impact could be the same.

Consequences for farmers and hedgers could be dramatic, as most of these indepen......................

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