NEW YORK (HedgeWorld.com)–A member of the Commodity Futures Trading Commission addressed the futures and derivatives committee of the New York City Bar Association, reporting progress on some indexing and margining issues that require CFTC coordination with the Securities and Exchange Commission.
Commissioner Frederick W. Hatfield, who before the president nominated him to the position on the CFTC was chief of staff for Sen. John Breaux (D-La.), assistant minority whip before he left the Senate, spoke on several issues, in order to update the New York bar on the CFTC’s pending reauthorization and appropriation bills, as well as on its discussions with the SEC over issues surrounding securities futures products (SFP). Members of the staff of the two agencies have been meeting regularly over SFPs, and the two chairmen–Messrs. Reuben Jeffery and Christopher Cox–have discussed these issues as well.
“Futures on single stocks and on indexes that qualify as narrow-based … were authorized in 2000 by the CFMA, subject to the joint jurisdiction of the CFTC and the SEC,” Mr. Hatfield recalled. “Due to the qualifying criteria set forth in the statute, however, few foreign index products have been approved for trading since that time, and futures on debt security indexes have not been permitted at all–primarily because the tests were designed with equity securities in mind.”
In the near future, he said, one can expect the publication in the Federal Register of a joint proposed rulemaking that will permit debt securities futures. Progress on foreign securities indexes has been slower, though.
He also said that SFPs in the United States are at a competitive disadvantage–they aren’t thriving here as they are in Europe, due to the practice of fixed-rate strategy-based margining. A move toward the alternative, risk-based portfolio margining, which allows offsets for highly correlated positions, has become a priority of the SEC and CFTC, at the urging of the President’s Working Group.
As to the reauthorization of the CFTC itself, Mr. Hatfield observed that two bills addressing the issue, S. 1566 and HR 4473, are on the Senate’s legislative calendar.
“It is my understanding that Sen. Mike Crapo (R-Idaho), who was previously opposed to new requirements in the natural gas market, has since removed his objection to the legislation so that the reauthorization can move forward. We have also learned that Sen. Richard Durbin (D-IL), in consultation with Chairman Jeffery, has been working to identify Democratic amendments in order that appropriate floor time can ultimately be scheduled.”
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