We don’t write the headlines for the Times, but stories about elite, secretive groups have abounded for centuries. Of course money is at the top of the feeding pyramid and those who have survived the struggle, still struggle to protect the status quo. The question as it relates to Daniel Singer is how can he be sure he is getting a fair deal? Is this truly a type of insurance or is it a closed cabal of ‘made men’ manipulating instruments to insure the dominance of their association against competitors by secrecy? – carlos
A Secretive Banking Elite Rules Trading in Derivatives
By LOUISE STORYPublished: December 11, 2010
On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
PROTECTING THE CUSTOMER Daniel Singer runs a heating oil company in Elmsford, N.Y., and is a derivatives customer. In order to offer homeowners fixed-rate oil plans, he buys derivatives contracts. But since the trading system is not transparent, he can’t tell whether the prices he gets are fair or not.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.
Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk. In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.
The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.
Banks’ influence over this market, and over clearinghouses like the one this select group advises, has costly implications for businesses large and small, like Dan Singer’s home heating-oil company in Westchester County, north of New York City.
This fall, many of Mr. Singer’s customers purchased fixed-rate plans to lock in winter heating oil at around $3 a gallon. While that price was above the prevailing $2.80 a gallon then, the contracts will protect homeowners if bitterly cold weather pushes the price higher.
But Mr. Singer wonders if his company, Robison Oil, should be getting a better deal. He uses derivatives like swaps and options to create his fixed plans. But he has no idea how much lower his prices — and his customers’ prices — could be, he says, because banks don’t disclose fees associated with the derivatives.