quote:SEC and CFTC Still At Odds Over Regulatory Reform Published: Wednesday, 2 Sep 2009 | 10:47 AM ET Text Size By: Reuters
US securities and futures regulators risk stifling innovation and competition if they adopt a rigid set of rules for regulating financial instruments, the chief regulator of the commodities markets warned on Wednesday. SEC
In an effort to meet an Obama administration request to harmonize their rules, the Securities Exchange Commission and the Commodity Futures Trading Commission met this week for a pair of historic meetings to hear from exchanges, consumer groups, enforcement officials and other experts.
Gary Gensler, the head of the CFTC, said overlap between his agency and the SEC must be limited to areas where it is beneficial to the American public, such as enforcement.
In other cases, it creates more havoc, increasing uncertainty and leading to an inefficient use of resources.
"There are areas where the CFTC and SEC regulate similar products, practices or markets, but do so differently," said Gensler, who vowed to work closely with the SEC.
"There are times when these differences are appropriate, but at other times, they could stifle competition, increase costs or limit investor protection," Gensler said.
However, in a sign market regulators have been deeply divided for years, CFTC Commissioner Jill Sommers said the futures and equities markets serve "fundamentally different purposes" and require different "divergent" regulatory schemes.
The push to overhaul the regulatory framework has gained momentum in the White House and in Congress following the worst financial crisis in decades that exposed gaping holes in the country's regulatory system.
The White House has urged the agencies to give Congress a report that identifies existing conflicts and makes recommendations on how to resolve them by the end of September.
While the request is not binding, SEC Chairman Mary Schapiro and Gensler are under pressure to bridge the divide. The Crisis: 1 Year Later - A CNBC Special Report - See Complete Coverage
Other exchanges such as IntercontinentalExchange urged a standard set of rules that would allow the SEC and CFTC to protect market integrity and reduce systemic risk.
ICE senior vice president Jonathan Short said the rules should be flexible enough to adapt to changing market conditions.
"While harmonization of the two regulatory systems and prevention of regulatory arbitrage should be an objective, core principles should be flexible enough to permit differences in regulation where the primary purposes of markets warrant" requires it, said Short.
Weak regulation of the $450 trillion private derivatives market has been blamed in part for causing the crisis, intensifying demands that they end their turf wars.
At the core of most SEC-CFTC disputes is whether a product is a security or a commodity future. The divide has delayed approval of products, much to the dismay of investors and other market participants. It took regulators more than three years, for example, to resolve options on gold exchange traded funds.
RELATED LINKS
Current DateTime: 07:53:11 02 Sep 2009 LinksList Documentid: 32656904
* Bailed-Out Banks' Executives Set to Cash In Again * MBA Proposes Mortgage Securities With US Guarantee
Regulatory disputes have consumed agency resources and created uncertainty in the marketplace as to how products will be regulated.
The CFTC takes a more flexible, principles-based approach to regulating exchanges and clearing organizations. The SEC abides by strict rules to regulate stock exchanges. But not all groups embraced a universal framework.
"These significant, intrinsic differences between derivatives and securities markets are likely to be eviscerated by a one-size-fits-all regulatory regime, undermining the value of both markets," said Craig Donohue, head of the Chicago Mercantile Exchange , the world's largest exchange.
The idea of combining the CFTC and SEC has been suggested, but has failed to gain traction amid concern from the respective agencies and opposition in Congress. Copyright 2009 Reuters. Click for restrictions.
posted