Derivatives Group Works to Keep Government at Bay

Outside the financial world, the International Swaps and Derivatives Association is a little-known organization representing a sector engaged in an incomprehensible business.

In recent days, the trade group has been mentioned frequently in mainstream media coverage of the Greek debt crisis.

It was ISDA that ultimately determined that a “credit event” had occurred, triggering insurance contracts known as credit default swaps on the debt. (For more on this issue, see Dealbook’s story.)

To those of us who don’t work in the complex field of international derivatives, it might seem odd that a trade group, rather than, say, a governmental agency, is empowered to make such decisions.

Yet ISDA exists, in part, to prevent government intervention. ISDA not only sets standards designed to foster “safe and efficient” markets. It has worked through legal and lobbying channels to block efforts at regulation.

Headquartered in New York, with members in 57 countries, ISDA represents traders in the derivatives markets – governments, banks, asset managers, commodities firms, insurers and other companies.

Many of its U.S. members, including JPMorgan, Bank of America, Citigroup, and Goldman Sachs, run up sizeable lobby bills of their own.

ISDA focuses on just a segment – although a very lucrative one – of members’ activities. It concentrates on derivatives – the complex financial instrument blamed as a big contributor to the 2007-2008 financial crisis.

While much attention has been directed toward Greece and its potential impact on global economies, ISDA has never taken its eye off Washington.

The group has lobbied the Fed and the administration, and filed suit in federal court.

After the collapse of Enron in 2001, it argued that “the market worked.” It then lobbied successfully against legislation designed at regulating energy derivatives.

More recently, it has argued that including foreign swaps in regulations stemming from Dodd-Frank would increase costs and risks and threaten U.S. financial stability.

It also has joined the Securities Industry and Financial Markets Association in asking a federal court to block a new rule by the Commodity Futures Trading Commission. The regulation, known as the “position limits rule,” sets caps on how many contracts traders can have.

“The evidence is overwhelming that position limits are, at best, unnecessary and may, at worst, negatively impact commodity markets and users,” then-CEO Conrad Voldstad said in a statement.

Voldstad, who is not a registered lobbyist, served as chief executive of the group from 2009 through 2011. In January, Robert G. Pickel, who had previously held the post before moving to a vice chairmanship, returned to the CEO position.

Pickel has been a lobbyist for the organization since 2004 and has played a major role in discussions about regulatory oversight.

Other current lobbyists for ISDA are Mary Johannes, who previously lobbied for Ford Motor Company; and Christopher Young, a former lobbyist for Freddie Mac.

In addition to its own team, the group contracts with three outside firms:

  • Peck, Madigan, Jones & Stewart, Inc.
  • David L. Horne, LLC
  • Cleary Gottlieb Steen & Hamilton LLP

Last year, ISDA spent $2 million lobbying in Washington. It reported contacts with the following government entities:

  • Commodity Futures Trading Commission
  • Department of the Treasury
  • Federal Reserve System
  • Federal Trade Commission
  • Internal Revenue Service
  • Securities and Exchange Commission (SEC)
  • Executive Office of the President

ISDA lobbied on the following bills:

  • 112 H.R.1573: To facilitate implementation of title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, promote regulatory coordination, and avoid market disruption.
  • 112 H.R.1838: To repeal a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibiting any Federal bailout of swap dealers or participants.
  • 112 H.R.2586: Swap Execution Facility Clarification Act
  • 112 H.R.2779: To exempt inter-affiliate swaps from certain regulatory requirements put in place by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
  • 112 H.R.3045: Retirement Income Protection Act of 2011

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