At the heart of the financial crisis five years ago was the inordinate volume of financial derivatives that were overvalued and backed by high-risk collateralized assets.

Extensive lobbying during the past three years by Morgan Stanley and BlackRock have left nearly 80 percent of the $633 trillion global over-the counter (OTC) derivative market virtually unregulated, according to Bloomberg.

The face value of OTC derivatives grew from $88.2 trillion at the end of 1999 to $683.7 trillion by the end of June 2008, according to the Bank of International Settlements (BIS). Today, the total dropped $50 billion to $633 trillion, and more than half of these instruments are interest rate swap derivatives.

Big banks earn nearly $50 billion annually by trading these derivatives, according to Bloomberg.

For many decades, swap trading has been conducted privately by corporations and financial institutions, such as Morgan Stanley and BlackRock, without an objective, transparent exchange mechanism. These transactions are used to hedge or speculate on the price change of underlying securities or commodities.

The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 was an attempt to increase this transparency by routing registered derivative transactions through central clearinghouses that report to trade repositories. This construct would ensure the winners are paid by the losers in a timely fashion.

Unfortunately, Dodd-Frank relied on future rule making by the Commodities Futures Trading Commission (CFTC), and the rules drafted over the past three years have excluded more than $500 trillion of these derivatives from regulation.

In the first year following the Dodd-Frank legislation, banks and their largest lobbying group, the Securities Industry and Financial Markets Association, spent more than $3 million to influence the application of this legislation, says Bloomberg. Significant institutions involved in this activity include Morgan Stanley, one of the largest swap dealers, and BlackRock, a large swap buyer. From April 2010 through July 2013, visits to the CFTC by Morgan Stanley totaled 98 (3rd overall) and those for BlackRock were 69 (9th overall), based on data from Bloomberg.

Making matters worse, industry-lobbying efforts continue to delay the adoption of CFTC rulings.

Swap execution facilities, which would enable more transparency, are set to take effect shortly. However, requests to delay these reforms or issue temporary waivers have been sought by the Wholesale Markets Brokers' Association and the International Swaps Derivatives Association, respectively, to accommodate the transition by their members.

"We may have to revert back to voice trading for a while," said Supurna VedBrat, co-head of market structure and electronic trading at BlackRock, according to Bloomberg. This is anathema to the competitive, streamlined market the CFTC regulators are justly seeking.

The derivative landscape remains largely unregulated and populated by the very large institutions that helped bring down the system while earning large profits. Ironically, these very institutions stand to earn much more in the near term due to this legislation.

According to Bloomberg, Sunil Hirani, chief executive officer of trueEx Group LLC, who helped pioneer electronic derivative trading, said, "The banks are going to be fine. They are going to make a ton of money."

Jill Sommers, a former Republican CFTC commissioner, said, "I wish we would have done more to encourage competition. The only people that can afford to stay in the business are the people who have already long established their footprint in the market."

The current system is in great need of further reform. The rules that encourage competition, promote adequately capitalized derivatives and ensure proper clearing should apply to all derivatives, traders, dealers and clearinghouses.