Securities firms hire derivatives pro to lobby

Seven major American and foreign banks have hired a prominent financial lawyer to lobby on legislation that would restrict how banks do business in the multitrillion-dollar derivatives market.

Edward Rosen, a partner at Cleary Gottlieb, registered as a lobbyist for the banks at the end of October and received at least $200,000 in the third quarter, according to congressional lobbying records.

The banks include some of the biggest names in finance: HSBC Securities, Wells Fargo, BNP Paribas, Deutsche Bank Securities, Barclays Capital, Banc of America Securities and Credit Suisse Securities. Six of the banks registered Rosen on the same day, Oct. 29.

Based in New York City, Rosen has been a central player on derivatives legislation throughout the financial regulatory overhaul debate this year. Financial derivatives are tools used by a wide range of companies to hedge risk of credit default or risks associated with interest rates, currency markets and other issues.

Between his current work and earlier lobbying efforts, Rosen’s firm reported close to $1 million this year for lobbying work on derivatives legislation. Rosen has been registered as a lobbyist on all the Cleary Gottlieb contracts.

The firm reported $430,000 to lobby for an informal group of banks earlier this year called the CDS Dealers Consortium before the group was disbanded in July, according to lobbying records. That group included several of the banks, including Barclays and Credit Suisse, that recently hired Rosen.

CDS refers to “credit default swaps,” one form of derivatives that critics have slammed for exacerbating the financial crisis.
Rosen also lobbied for Citigroup, the Securities Industry and Financial Markets Association (SIFMA) and the International Swaps and Derivatives Association (ISDA).

“This guy is considered the bee’s knees of knowing the inside-out of derivatives,” said a financial-services lobbyist. Rosen wrote a two-volume book on derivatives legislation and has spent years working on derivatives law and lobbying. A spokeswoman for Cleary Gottlieb declined to comment.

The Obama administration and congressional Democrats are pushing forward on legislation aimed at imposing a series of new regulations on what is a largely unregulated and opaque market.

Democrats and other critics argue derivatives exacerbated the financial crisis and brought insurance firm American International Group (AIG) to its knees. AIG received more than $180 billion in government bailout commitments.

The House is eyeing a vote on derivatives legislation in the first week of December, said House Financial Services Committee Chairman Barney Frank (D-Mass.). The legislation would give new powers to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to regulate the market.

The legislation aims to bring as many derivatives trades onto public exchanges as possible, but also includes an exemption for so-called “end users.”

Business and bank interests have lobbied hard for the exemption. Groups like the Business Roundtable and U.S Chamber of Commerce formed the Coalition for Derivatives End-Users to fight for the exemption.

The exemption is aimed at helping firms that trade in derivatives to hedge risk for commercial purposes and would not apply to banks that deal in derivatives. End-users, though, are major clients for banks that deal in derivatives, and the exemption could help prop up what is a major source of profit for the banking industry.

Commercial banks in the United States reported a record $9.2 billion in revenue on derivatives in the first quarter of 2009 and another $5.8 billion in the second quarter, according to the most recent data from the Office of the Comptroller of the Currency.

Neither the Senate Banking Committee nor the Senate Agriculture Committee, the two panels with direct jurisdiction on derivatives issues, has yet to mark up legislation.