Exchange leaders mull meltdown

Regulatory reform after the market meltdown was a hot topic at the Financial Times’ Electric Money Conference in New York yesterday. One panel covered commodity price movement and recent regulatory efforts to restrict speculation. “Volatility is going to increase because of actions that the U.S. government has taken. The markets are noticeably smaller,” said John D’Agostino of Dagger LLC, a former vice president at Nymex, noting that basic open interest for crude oil on Nymex has gone down 58% from the same time last year. “The net impact of all of the fervor [over prices] has created a market that is less deep and less broad which will ultimately increase volatility,” he said.

Ron Oppenheimer of Merrill Lynch Global Commodities said pension funds were able to explain fairly well their role in the markets after Congressional attacks on them this summer, and that government efforts to regulate speculators have been overshadowed by the recent market meltdown.


However, Oppenheimer said commodities won’t escape upcoming efforts to regulate financial markets. “When Congress gets back after the election, there will be a focus on regulation and it’s very likely that one of the [speculation] bills that are out there will pass, either during the lame duck session or at the beginning of next year.”

The panel discussed the importance of increased education to stem Congress and the general public’s lack of understanding about the way the markets work. D’Agostino said that when he appeared on his show, Bill O’Reilly asked him to “give me the name of the Arab guy who controls the price of crude oil.” “[O’Reilly] represents 40 million Americans, and he’s not stupid, he’s just saying what they believe,” D’Agostino said.

Regulation was on the minds of exchange leaders on another panel, specifically the SEC short sale disclosure rules, which were just extended until August 1. Ed Tilly, executive vice chairman of the Chicago Board Options Exchange, emphasized the importance of taking an active role in regulation and in educating the SEC about the options market. Gary Katz, CEO of the International Securities Exchange, said options exchanges were experiencing record volumes in mid-September, until the SEC announced their restrictions on short selling. “Overnight, volume dried up because for the first time players in the marketplace didn’t understand all the rules that were in place,” he said.

Magnus Bocker, president of Nasdaq OMX, said that in general intelligent regulation on a global scale is needed. Larry Leibowitz, head of U.S. markets for NYSE Euronext, said that the equities market is overregulated, while derivatives markets regulation is very opaque, and we need something in between.

Rick Redding of CME Group compared the idea of a merger of the SEC and CFTC to “rearranging the deck chairs on the Titanic” and said the idea of one single global regulator would be difficult to implement because of individual laws of each country.

Katz said ISE hopes that the SEC will advance their mutual recognition agreement with the CFTC to allow for a better competitive advantage with U.S. products, but current market conditions have gotten in the way. All of the exchange representatives pushed the concept of intelligent regulation and working with regulators to give the muddled U.S. regulatory structure a competitive advantage worldwide.

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