CFTC's Regulatory Authority Studied

August 6, 1999

A House subcommittee Thursday examined whether the Commodity Futures Trading Commission is providing effective relief to commodity exchanges. Subcommittee Chairman Tom Ewing (R-IL) is concerned that those affected by regulations participate adequately in the regulatory process.

"It is not my intent that government regulation should empower one business structure or entity to flourish or struggle at the expense of another," Ewing said. "Instead it is our job to ensure that fair and equitable laws are passed and proper and fair regulations are implemented to carry out those laws."

The CFTC recently published two proposed rules. One creates a pilot program to allow exchanges to list new contracts without CFTC pre-approval. The other would streamline procedures for reviewing exchange rules and allow futures exchanges to change some rules and make some rule amendments automatically as long as they met certain requirements.

"While these proposed rules may address some of the concerns in the exchanges' 4 (c) petition (a part of the CFTC act under which three futures exchanges recently petitioned for relief), I am concerned about whether there has been adequate input from affected parties to make these proposed rules effective and far reaching enough if adopted," Ewing said.

Domestic exchanges need regulatory relief "in order to compete on equal terms with the foreign boards of trade that will be able to offer competing products via direct electronic access to persons in the United States," the Chicago Board of Trade, the Chicago Mercantile Exchange and New York Mercantile Exchange told CFTC in a June 25 letter.

The Commission's proposal for new contract applications "represents a significant departure from its dogma that new contracts must be approved in advance," said CME counsel Jerrold E. Salzman in testimony before Ewing's subcommittee. But the "implicit recognition that exchanges and market users are the best judge of the merits of new contracts is, unfortunately, hedged in a way that impairs its value."

CBOT lawyer Mark D. Young told the panel the petition seeks regulatory relief to list new products immediately without prior CFTC approval, enforce new rules immediately without prior CFTC approval and to put into effect immediately any trading rules necessary to respond directly to competition from any foreign exchange operating trading terminals in the United States.