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Portfolio > Alternative Investments > Hedge Funds

Newsome Leaving CFTC, Looking Back on Changes Wrought

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WASHINGTON (–The chairman of the Commodity Futures Trading Commission has resigned that post, effective July 23. Thereafter, one of the two remaining commissioners, Walt Lukken or Sharon Brown-Hruska, will become the acting chair.

James Newsome, a commissioner since August 1998 and chairman since January 2001, has witnessed and helped shape a lot of dramatic changes in the U.S. futures markets, in large part mandated by the Commodity Futures Modernization Act of 2000, which Mr. Newsome supported.

Earlier this year, for example, the CFTC was at the center of the controversy over Eurex’s move into the United States to compete directly with the Chicago derivatives exchanges on their turf. The domestic exchanges commented that the Eurex US application was not materially complete and that the proposed link between its U.S. clearing organization and the parent company’s clearing operation created new financial risk factors and opportunities for money laundering. The CFTC nonetheless gave Eurex US its designation Feb. 4.

Mr. Newsome was not available for an interview about his departure, but Patrick McCarty, the CFTC’s general counsel, answered certain questions on his behalf. “Mr. Newsome notes that in response to this competition, the Board of Trade of the City of Chicago … has initiated transaction fee reductions for its U.S. Treasury products and has listed futures and options on German debt instruments to compete with those offered by Eurex. Mr. Newsome believes that such competition for business means more choice for investors in financial derivatives.”

More recently, as the Securities and Exchange Commission has moved toward mandatory registration for hedge funds as investment advisers, the CFTC under Mr. Newsome has expressed skepticism about the necessity for any such rule. Mr. McCarty testified before Congress last week that there has been very little fraud in the hedge fund arena. Only 3% of the enforcement actions brought by either SEC or CFTC over the last five years have involved hedge funds or commodity pools, he told the Senate Banking Committee.

Mr. Newsome’s tenure at the CFTC also will be remembered for the part he played in enabling securities futures products in the U.S. Congress, through the Commodity Futures Modernization Act of 2000, repealed the earlier “Shad-Johnson Accord” that had blocked such products (both single-stock futures and narrow based indexes). Thereafter, the CFTC and SEC jointly formulated rules for their regulation.

Mr. Newsome acknowledged this week, through Mr. McCarty, that such products have not been as successful as some have predicted. He believes that this is due in part to the lack of a risk-based portfolio-margining regime for security futures similar to that used in other futures markets.

“Another issue that remains outstanding is the promulgation of joint rules to permit the trading of foreign SFPs. It is Mr. Newsome’s hope that the CFTC can reach agreement with the SEC on these and other issues in the near future.”

Mr. Newsome won’t be idle long. The New York Mercantile Exchange named him as its new president, effective Aug. 2, after J. Robert Collins stepped down last month.

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Contact Robert F. Keane with questions or comments at:

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