While tech giants like Amazon and Google have drawn much of the Biden administration’s antitrust attention, a more significant — but as yet ignored — antitrust problem is flying under the radar in the less obviously sexy area of derivatives trading.
While derivatives may seem like the kind of thing that only matters to Wall Street fat cats, futures trading is, in fact, how everyone from farmers to retailers to insurance companies hedge their risks. By spreading risk, derivatives lower the costs of risk taking and thus are the secret ingredient that has driven a great deal of recent American prosperity. Ensuring derivatives markets are competitive, innovative, and secure should be a national priority. Recently, much derivatives trading, especially in new asset classes, has moved overseas.
Deep within the plumbing of derivatives markets lie two companies — Intercontinental Exchange (ICE) and Chicago Mercantile Exchange (CME) — that dominate the industry. According to recent data, they process more than 97 percent of all U.S. derivatives trades. Experts have long known that a large market share alone is not sufficient evidence of a troubling monopoly (or, in this case, duopoly). But that presumption goes out the window when, as here, monopoly power is artificially obtained and protected by virtue of a privileged regulatory position. Congress compounded that problem with new rules created by the Dodd-Frank Act that inhibit innovation. The consequence is a monopolized and constrained market that needlessly disadvantages U.S. investors and consumers and puts all U.S. financial markets at greater risk.
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