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Patricia Campbell
Peregrine Financial Group, Inc. (PFG)
(312) 775-3411

CFTC, SEC agree to play better together

March 11, 2008 - DOW JONES

U.S. regulators agreed Tuesday to a broad-reaching memorandum of understanding designed to formalize closer cooperation between the Securities and Exchange Commission and the Commodity Futures Trading Commission.

SEC Chairman Christopher Cox and acting CFTC Chairman Walter Lukken signed the agreement at the SEC's Washington, D.C., headquarters and said it reflects a desire to put aside turf wars and take a unified approach to market regulation.

A framework for sharing information, including on enforcement cases, is part of the accord. It also establishes principles for reviewing new products that permit products to trade either as a commodity future or as a security, or both.

Regulators said the agreement is intended to bring more legal certainty to novel, cutting-edge products, which can get bogged down in lengthy debates about whether such instruments are securities, which are regulated by the SEC, or commodity futures, which are overseen by the CFTC.

"The goal is to get these new products to market quickly," Lukken said at a press conference after the signing ceremony.

To that end, the SEC and CFTC will seek public comment on applications to trade options and single-stock futures on the StreetTRACKS Gold Trust shares, and on clearance and settlement of such products.

"Keeping up with innovation demands nothing less than a unified approach," said Cox.

In addition to addressing new-product approvals, the agreement calls for a permanent regulatory liaison between the two agencies, formal quarterly meetings of its staff, and ongoing consultation on matters, including industry mergers and enforcement investigations.

Cox said the cooperation agreement reflects a desire to avoid "counterproductive turf wars" between the two agencies.

Lukken acknowledged "we're different regulators," with different approaches but "have many common regulatory interests."

Differences are evident in the way each agency treats applications to trade new products. The CFTC's approach allows new products be introduced quickly unless the agency's regulators step in, while the SEC staff routinely reviews each application, a process critics view as a bureaucratic roadblock.

Russ Wasendorf Sr., chairman and CEO of PFG Best, a Chicago-based futures brokerage, said the differences are evident in areas where the SEC and CFTC overlap, such as trading of single-stock futures. While such products are the fastest-growing part of the global derivatives business, they have been slow to take off in the US.

"There should be a recognition of parity, at least parity, between the agencies," Wasendorf said.

Former CFTC director Michael Gorham, now director of the IIT Stuart Center for Financial Markets at the Illinois Institute of Technology in Chicago, said the SEC-CFTC relationship has been "a little bit icy" in areas where the two butted heads, including on single-stock futures.

Going forward, Lukken said the agreement will help in ongoing discussions with the SEC on U.S. trading of foreign stock indexes and portfolio margining.

The SEC-CFTC accord comes as the U.S. Treasury Department is considering an overhaul of U.S. financial-market regulation. One idea would be to merge the SEC and CFTC, creating a single regulator for securities and commodity futures, including financial futures.