Citadel's Griffin lauds financial reform, to the surprise of some

(Crain's) — Citadel LLC's billionaire hedge-fund manager, Kenneth Griffin, surprised some people when he said in a Tuesday evening speech that last year's Dodd-Frank Wall Street Reform Act got needed changes 98% right, attendees said.

Mr. Griffin delivered his speech, titled “Managing OTC Derivatives' Systemic Risk — the Pivotal Role of Central Clearing,” to a packed room of students, industry executives, lawyers and academics at a University of Chicago Booth School of Management forum. A school spokesman and a Citadel spokeswoman requested that media not report his remarks.

Mr. Griffin founded Chicago-based Citadel in 1990, and the hedge-fund firm now has about $11 billion in assets under management, deployed in various fund strategies. The firm also launched an investment bank and securities trading unit in 2002.

Corporate lawyer Stephanie Matthews, who attended the speech, said some people sitting near her were put off by Mr. Griffin's advocacy of increased regulation and transparency in the derivatives industry.

Congress passed Dodd-Frank, named for Democrats Rep. Barney Frank of Massachusetts and former Sen. Chris Dodd of Connecticut, last July in response to the subprime financial crisis that began in 2007 and the resulting bank and corporate failures that led to federal bailouts. The law had two major goals: Increase transparency in the over-the-counter derivatives market, where transactions have historically been privately handled by a small number of large New York banks, and curtail risk-taking by the banks.

Ms. Matthews said she supported Mr. Griffin's point of view that large banks active in that market shouldn't be able to take risks at a potential cost to taxpayers. “I think that was a revolutionary idea for some people who were here,” Ms. Matthews said.

Another Chicago lawyer, Jeffrey Jarmuth, said he wasn't surprised to hear Mr. Griffin's support for the law, but was impressed that he made such a direct case for it. Some people “expected him to be down-the-line conservative,” Mr. Jarmuth said.

Mr. Jarmuth said he hoped Mr. Griffin was right in predicting that increased transparency in the market required by the new law would benefit Chicago's futures trading firms and help break the long-term lock that New York dealers have had on the OTC market.

As a market participant in the derivatives trading realm, Mr. Griffin would likely benefit, as would other trading firms, from a more liquid market with increased competition and tighter bid-ask spreads, Mr. Jarmuth said.

The key point from the speech for Salloum Abou-Saleh, a Chicago salesman for a trading technology firm, was that Mr. Griffin found the new law “a must for the financial market not to repeat the mistakes of the past” and to protect end-users and taxpayers. Mr. Saleh agreed with Mr. Griffin's notion that the dealers have acted as a “closed club” in controlling the OTC market.

Mr. Griffin is “a true free-market supporter,” Mr. Saleh said. “He wants true competition.”

Mr. Griffin's remarks regarding the new law were similar to those he made at a Chicago Federal Reserve Bank event last September. Regulators are writing rules to implement the changes.