President Obama’s proposal “Financial Regulatory Reform: A New Foundation,” released June 17, packs a few punches for the futures industry. And some major proposals from the Commodity Futures Trading Commission (CFTC) on speculation limits for energy markets and capital requirements for futures commission merchants (FCMs) are creating a buzz.
Obama’s proposal calls for a “harmonization” of the CFTC and Securities Exchange Commission (SEC). The CFTC and SEC must make recommendations to Congress on how to eliminate differences “with respect to similar types of financial instruments that are not essential to achieving investor protection.” The two agencies must complete a report by Sept. 30. Otherwise, the matter will be forwarded to the soon-to-be created Financial Services Oversight Council. Some are concerned that the creation of additional agencies will not solve the problems that exist in the financial system.
“The proposal itself requires three coordinating agencies to make it work. That tells you there are too many agencies. The solution is basically holding things together with band-aids and tape. [What’s being said] is this is the best we can do given the current political landscape. That’s a very unfortunate approach,” says Gary DeWaal, general counsel at Newedge, adding, “It’ll be good at catching last year’s problems, but it won’t help catch the new problems.”
Former CFTC Chairman Philip McBride Johnson says the “harmonization” would “either deprive the SEC of its ability to tilt the scale in favor of investors (slowing the flow of capital) or bias the CFTC against major users of the markets (blunting short hedging) and defeating the very purpose why each of them exist. They have great purposes that could not survive in combined form.”
The proposal received mostly praise from exchange heads, however. Chicago Board Options Exchange Chairman Bill Brodsky says, “We are particularly pleased that the plan recognizes the need for greater coordination and harmonization of the SEC and CFTC, including streamlining the approval of new products and rule filings.” In a statement, CME Group called the proposal “a significant step towards restoring confidence in the integrity of financial markets.”