The Commodities Futures Trading Commission and the Securities and Exchange Commission plan to review where their derivatives oversight overlaps and devise a plan for better cooperation. According toDW sister publication Wall Street Letter the agencies began stepping on each others' toes several years ago when they agreed that interest-rate and equity-linked futures would be regulated by both agencies. But with the advent of more futures based on financial instruments, lines between futures and over-the-counter markets have blurred, prompting outcry from brokerages over regulatory overlap. The regulators plan for a series of meetings over the next year to delineate responsibilities in regulating dealers and exchanges that trade futures alongside other derivatives.
The news has some over-the-counter officials nervous the regulators could take the opportunity to reassess OTC legal protections granted by Commodity Futures Modernization Act of 2000. In a court case two years ago against Michael Zelener, president of British Capital Group, the CFTC showed it was keen to assert authority over OTC instruments such as structured fx notes that may be sold to retail investors.
In a recent speech before the American Bar Association, CFTC Chairman Reuben Jeffery said he recognized some products have blurred the regulatory lines, making it difficult to decide how they should be regulated and by whom. "I expect the year ahead will see the CFTC working closely with other regulators to...eliminate legal uncertainty while at the same time assuring that critical public and market protection issues are addressed," he said. SEC officials confirmed the Chairman's office will be working more closely with the CFTC.
Conflicts between the SEC and CFTC have already tripped up some projects. The SEC and the CFTC recently clashed on whether to define credit-default swaps as options or futures after the Chicago Board Options Exchange and the Chicago Mercantile Exchange filed separate applications to trade these instruments on their exchanges. "There is a need for more cooperation on these issues so we aren't impeded in our competitiveness," said William Brodsky, chairman and ceo of the CBOE.
