Banks Oppose Market Transparency

There are proposals out there to require that derivatives be traded in open regulated markets, and banks are cranking up the lobbying machine to kill this. (Also here and here)

The reason is that it will cost them a lot of money:

Potentially billions of dollars in revenue is at stake. An effort earlier this decade to improve transparency in the corporate-bond market ended up cutting bank fees by more than $1 billion in a year, according to some studies.

For CDS and other complex financial instruments, I would put the low end of savings at tens of billions of dollars a year.

How does transparency save costs for the buyers and sellers, and cost the banks money?

Well, if you have an asset nominally worth $100, a bank would list it for sale for their customer at, say $99, and list the price to buyers at $101, which means that the bank collect $2 on each transaction.

In an public market, where these spreads would be known, buyers and sellers pursue the lowest spread, so it would be closer to $99.90 and $100.10 respectively, and that's money out of their pockets that could be spent on whores and cocaine.

Needless to say, the banks don't want this, so they are rolling out all sorts of voluntary measures to increase transparency, which would be observed only in the breach once the moves to regulate fade into memory.