Futures Industry: CFTC, SEC Merger Not Likely

CHICAGO—Members of the futures industry on Thursday reiterated their desire to remain independent, shooting down the notion that they would benefit from a merger between the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC).

"I would adamantly oppose any merger," says Terrence Duffy, chairman of the Chicago Mercantile Exchange (CME). "The SEC would quickly swallow up the CFTC" and erase "all the good work" that has been done since the enactment of the Commodity Futures Modernization Act of 2000, which allowed for the trading of single stock futures.

"We'd be concerned with putting the agencies together without clarity on how exactly we'd be regulated," says Chicago Board of Trade (CBOT) chairman Charles Carey. "We'd all like to streamline, but we'd all stand strong for the regulation that we have now."

At present, the CFTC regulates the futures markets while the SEC handles stocks and options. A merger between the two agencies has long been suggested by lawmakers as one way to streamline the industry, but none of those efforts have been successful.

"We have a process under way to improve coordination between the agencies," says an SEC spokesperson.

Duffy, Carey and Futures Industry Association (FIA) president John Damgard discussed recent U.S. federal election results at the annual FIA expo last week in Chicago.

Duffy says he is critical of a proposed user fee on futures transactions. The Bush administration earlier this year proposed the fee as part of its FY2007 budget. Every administration since Ronald Reagan has unsuccessfully made such a request.

"Our transactions on futures exchanges are [executed] by people who provide deep pools of liquidity," Duffy says. The proposed fee would mean a 50 percent increase in fees, which "would drive business overseas immediately," Duffy says.

He says he is confident, however, that "we delivered our message quite clearly" to members of Congress. "I don't think that's what Congress is trying to do. They understand that a user fee is no more than a tax," he says.

The futures industry would also benefit from the official authorization of the CFTC, says the FIA's Damgard.

"An agency that's not authorized by Congress is always vulnerable, especially when there's a hungry agency [like the SEC] out there that would like to have that authority," Damgard says. "Funding an agency that's not authorized is also a concern. As Congress puts more and more power on the [CFTC] without giving them additional resources, that damages the ability" of the CFTC to successfully police the industry.

Authorization would direct Congress "to fulfill promises" like portfolio, risk-based margining for single stocks and defining narrow- and broad-based contracts, says Duffy.