Representatives Barney Frank (D-Mass) and Mike Capuano (D-Mass) introduced a bill Thursday night that would merge the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).
The idea of merging the two market regulators has been floated in the past, most recently during the negotiations over the Dodd-Frank Act following recommendations made by former Treasury Secretary Hank Paulson in a 2008 report on modernizing regulation. At the time Rep. Frank rejected the idea as one that would prevent a comprehensive regulatory reform bill from moving forward. “Had we sought to merge those institutions in the overall financial reform bill, it would almost certainly have caused the defeat of that that legislation,” Frank noted in a statement on the proposed merger. “Now that the basic policies have been adopted to cover security and derivatives regulation we can focus on the structural issue.”
Earlier this month the House Financial Services Subcommittee on Oversight and Investigations reintroduced the idea of a merger in its report on the MF Global default. The report criticized the two regulators for lack of coordination and noted, “The apparent inability of these agencies to coordinate their regulatory oversight efforts or to share vital information with one another, coupled with the reality that futures products, markets and market participants have converged, compel the Subcommittee to recommend that Congress explore whether customers and investors would be better served if the SEC and the CFTC streamline their operations or merge into a single financial regulatory agency.”
The idea of a merger between the two agencies brought a sharp rebuke from Senator Pat Roberts (R-Kan), the ranking Republican on the Senate Agriculture Committee.
A chief stumbling block in past efforts to join the agencies has to do with turf, as the CFTC falls under the Agriculture Committee and the SEC under Financial Services.
Roberts noted in a statement quoted in Politico, “The CFTC has already made changes in an effort to prevent this from even happening again. I don’t see how merging two regulators who regulate different aspects of our economy would have made any difference in Governor Corzine’s bad decisions or in preventing such a problem in the future.”
House Agriculture Committee Chairman Frank Lucas (R-Okla) also rejected the notion of merging the two agencies following the recommendation in the Financial Services report, suggesting Congress should concentrate on holding those responsible for the MF Global debacle accountable instead of discussing a "hypothetical merger."
Lucas added, “Customers are still waiting on their money to be returned and have no idea if they will ever be made whole."
Opinions on the proposal appear not to be split so much along party lines as along committee jurisdictional lines.
Gerry Corcoran, Chairman and CEO of RJ O’Brien, says, “I would think the idea is worthy to explore, but nearly impossible to happen in the near term given the urgent need to incorporate Dodd-Frank regulation into the futures industry.”
CME Group has consistently opposed such a merger. The Intercontinental Exchange had no comment.
Frank added, “The existence of a separate SEC and CFTC is the single largest structural defect in our regulatory system. Unfortunately, this is deeply rooted in major cultural, economic and political factors in America...I file this bill now because I believe it is time for this to be on the agenda of the next Congress.”
About the Author
Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures magazine in 2001, before the name change to Modern Trader, and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and futuresmag.com. Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.