SEC, CFTC to 'harmonize' rules

Two agencies with oversight of the financial markets are trying to coordinate their regulations to eliminate differences involving similar types of investments and instruments
SEP 02, 2009
Two agencies with oversight of the financial markets are trying to coordinate their regulations to eliminate differences involving similar types of investments and instruments. The Securities and Exchange Commission, the government's primary markets watchdog, and the Commodity Futures Trading Commission — which oversees the trading of oil, gas and other commodities as well as financial instruments — have battled in the past over regulatory turf and found separate supporters in Congress. But as lawmakers craft an overhaul of the nation's financial rules and consider the Obama administration's sweeping proposal, the two agencies recently reached an agreement on sharing regulation of the over-the-counter derivatives market. Derivatives are traded in a $600 trillion unregulated market worldwide. Their value hinges on an underlying investment or commodity, such as currency rates, oil futures or interest rates; they are designed to reduce the risk of loss from the underlying asset. The SEC and the CFTC are jointly holding public meetings on Tuesday and Wednesday to solicit input on the "harmonization" of their regulation of derivatives and other financial markets. The first meeting is scheduled to begin Tuesday at 9 a.m. EDT. Witnesses at the two meetings will include officials of the Chicago Board Options Exchange; CME Group Inc., owner of the Chicago Mercantile Exchange; NYSE Euronext, which runs the New York Stock Exchange; the California Public Employees Retirement System, the nation's largest public pension fund; the Futures Industry Association; Consumer Federation of America; the Financial Industry Regulatory Authority, the securities industry's self-policing body; the AFL-CIO labor federation; and the Managed Funds Association, representing the hedge fund industry. Under the agencies' new accord on regulating derivatives, credit default swaps and other derivatives related to securities — underlying stocks, bonds, options — would fall under SEC supervision. Primary oversight for the others — derivatives tied to interest rates, commodities, currencies, energy and metals— would go to the CFTC. Credit default swaps, accounting for an estimated $60 trillion of the derivatives market, are meant to insure against loan defaults. Close coordination between the two agencies will be required, and they must coordinate their regulations to eliminate differences, overlaps and gaps in supervision.

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