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Ken Griffin is CEO of Citadel Investment Group. He is one of the most successful hedge fund managers of all time, managing one of the world’s largest hedge funds.
We must mandate the clearing of standardised derivatives through regulated clearing houses.Central clearing protected the markets for equity-option, gold-future and energy-future derivatives during the meltdown last year; buy cialis online without a prescription.Within days of Lehman’s collapse, its centrally cleared futures and OTC interest rate swaps reallocated without loss to counterparties and without disruption in the markets – buy cialis online without a prescription.Compare this to the failure of Lehman’s unregulated credit default swaps and non-cleared interest rate swaps, which triggered chaos in the market because these contracts were not centrally cleared.
When Lehman failed, untold trillions of dollars of risk inherent in OTC derivatives became unhedged, creating significant market exposure for counterparties.The collateral posted by these counterparties is now tied up in the Lehman bankruptcy.Trading through clearing houses will break the “too interconnected to fail” paradigm, reduce the systemic risk inherent in the bilateral OTC marketplace and provide transparency.
Critics of the Obama plan argue it would “stifle innovation” in the derivatives market.But reform will not bar customised products; it will only ensure that the risks generated by such products are properly capitalised or collateralised.Detractors also argue central clearing will raise hedging costs for companies – buy cialis online without a prescription.But as in the equity-option and energy markets over the past two decades, increased price transparency through central clearing enables less frequent users, such as corporations, to enter into trades at better prices, reducing costs.
The derivatives markets failed us last year – buy cialis online without a prescription.It is shameful that the citizens of Main Street were forced to “bail out” Wall Street.Now is the time to preserve the enormous good created by the derivatives market buy cialis online without a prescription, while eliminating the flawed concept of “too interconnected to fail”.Regulators must implement central clearing where appropriate and put the integrity of our capital markets ahead of the profits of a self-interested few.
- We must overturn the status quo in derivatives
- Kenneth Griffin
- Financial Times
- October 26, 2009
It is important to remember that there are two sides to Wall Street: the sell side (investment banks) and the buy-side (asset managers). The buy-side had a front row seat to the near meltdown of the investment banks a year ago. Nobody was more negatively affected by the collapse in markets than the buy-side. So there are many voices on the buy-side that are very much in favor of strong regulation of derivatives – buy cialis online without a prescription.