Gensler/Chilton are not heroes to industry

December 22, 2013 06:10 PM

There is a huge dichotomy between how futures industry professionals view the outgoing Commodity Futures Trading Commission (CFTC) leadership team and how the general business media views them. Somehow Messrs.’ Gary Gensler and Bart Chilton have been given hero status by those general media outlets. That only proves that those outlets have never attempted to cultivate sources within the futures and derivatives space.

For example, the New York Times wrote an editorial last Tuesday expressing worry that with the departure of Gensler and Chilton from the CFTC there will be a lack of a reform agenda at the agency. I am not sure what they think needs to be reformed at this point or exactly how they define reform. General media outlets have a disturbing tendency to bundle finance and all markets in one space and can’t distinguish or understand that futures have a different purpose and a whole separate regulatory structure than equities. To them it is all Wall Street and it is all bad. As a Chicago guy, I would always correct folks referring to futures as Wall Street by saying you should refer to futures as “LaSalle Street.”

It is even more disturbing because the Dodd-Frank Act was originally mandated to apply the futures regulatory structure to the unregulated world of swaps because it was futures style regulation that worked and protected customer money (at least in the United States) in the Lehman Brothers debacle.

That is the irony in the entire regulatory reform process, that the industry whose structure weathered the heavy storms created by the failure of Lehman Brothers is arguably facing a greater regulatory burden than those folks who largely created the problem. Burdensome rules may force some smaller players out of business and push more business to the “too big to fail” institutions creating more concentration. In essence, the long, expensive and expansive regulatory reform process begun after the apex of the credit crisis will result in making the core problem of too big to fail, more acute.

And it would be good for the folks at the New York Times to know that it is not necessarily the large investment banks of Wall Street  that see the Gensler regime as disastrous but the smaller retail level futures commission merchants and introducing brokers representing Main Street.

Seems like a lot of the large banks have adequate exemptions so that regulatory reform may be a smaller annoyance to them yet force those entities serving the farmers and ranchers who use futures to mitigate price risk out of business.

I don’t think that was its intention.

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.