From the September 01, 2009 issue of Futures Magazine • Subscribe!

Brodsky calls for SEC-CFTC merger

Chicago Board Options Exchange (CBOE) Chairman Bill Brodsky dropped quite a bombshell when he told Congress that the CFTC and SEC should merge on July 17.

Brodsky was testifying before the U.S. House Committee on Financial Services about the Administration’s proposal for regulatory reform released on June 17. The proposal calls for a “harmonization” of the SEC and CFTC, wherein the two agencies must make recommendations to Congress on how to eliminate differences “with respect to similar types of financial instruments not essential to achieving investor protection.”

In his initial statement after the proposal was released, Brodsky praised the proposal for its greater coordination of the two agencies. In his July 17 testimony, Brodsky said “the bifurcated regulatory system has led to persistent negative consequences for our markets” and that “consolidation of the agencies is the only truly comprehensive solution. We should not continue to tolerate the inefficient and ineffective dual structure currently in place.”

The regulatory reform proposal, which Brodsky helped create, was seen as a compromise in that there was no call for a merger.

Gary DeWaal, general counsel for Newedge, doesn’t think a merger will happen because Congressional oversight committees do not want to give up their jurisdiction over either agency. “Politically, it’s not possible. What might be an interesting compromise is to change the CFTC to the derivatives trading commission so that the SEC has authority over all cash instruments that are securities, but a derivative of a cash instrument would be put under the CFTC. You wouldn’t have bifurcated regulation of the same product. Options would be under the CFTC, OTC products would be under the CFTC, and traditional futures would be under the CFTC. That would be a much more rational way to divide jurisdiction,” he says.

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