CFTC Must Change Regulation Policies

October 29, 1999

The chairman of the Commodity Futures Trading Commission says the agency "must embark on a process that may result in major deregulation of the financial futures markets." All CFTC contract markets would benefit from a "lighter regulatory hand," says William J. Rainer.

In response to that need, says Rainer, CFTC "intends to withdraw from approving contract designations and will soon issue proposed regulations to permit exchanges to adopt new rules without prior approval. These are key elements in our overall plan to move from being a front line to an oversight regulator."

CFTC has issued rules in the past authorizing the establishment of professional markets, "and while these proved unsuccessful, some may think this idea worth revisiting," he continued in a speech before a derivatives conference in Chicago. However, "I hesitate to create a regulatory climate that would force the exchanges to become exclusively professional markets to remain competitive."

That may be difficult to achieve, he admitted, "but our nation's priorities in the area of financial regulation dictate that we start to examine and regulate products, entities and exchanges on a rational basis and not be bound by tradition."

Commissioner James E. Newsome injected a note of caution in his address. "Has Congress vested within our regulatory purview a specific interest to protect? And do we have the flexibility to act appropriately? If not, then we should not, indeed cannot act...We should not embellish or embroider what Congress charges us with doing, and we should recognize that our public service can be best accomplished with regulatory prudence rather than zealousness."

If it is axiomatic that business seeks to operate in the most efficient manner possible, then the "rational business decision" will be to operate outside the United States to avoid "overly burdensome regulation," Newsome says. And that means that off-shore businesses no longer are within CFTC's policymaking authority. "I believe it is critical that regulators in this country recognize this fact and act so as to foster innovation that will allow American businesses to continue to grow as worldwide market leaders."

The text of Rainer’s speech can be found on the Internet at http://www.cftc.gov/opa/speeches/rainer-2.htm.  The text of Newsome's speech can be found at http://www.cftc.gov/opa/speeches/newsm-11.htm.