Ban on Single Stock Futures Questioned

December 21, 1999

Two Senate committee chairmen want a detailed study on whether Congress should lift the current ban on single stock futures. There's a risk that those types of instruments will develop in overseas markets if the prohibition continues in the United States, say Sens. Richard Lugar (R-IN) and Phil Gramm (R-TX).

Lugar and Gramm wrote to the Securities and Exchange Commission and the commodity Futures Trading Commission asking for a detailed report "addressing the desirability of lifting the current prohibition on single stock futures together with any legislative proposals." The plan should be presented to Congress no later than Feb. 21 "so that it might be made part of the reauthorization of the Commodity Exchange Act next session."

The President's working group, that included the SEC and CFTC, delivered a report to Congress noting "the current prohibition on single stock futures can be repealed if issues about the integrity of the underlying securities market and regulatory arbitrage can be resolved."

Lugar and Gramm said, "We agree that difficult regulatory issues would need to be settled in connection with reform of the Shad-Johnson accord which banned futures on single stocks over 16 years ago. However, by delaying consideration of the accord, we run the risk that these markets will develop outside our borders.

"Indeed, these types of instruments are already being traded overseas and over the counter and may be synthetically constructed in the options market. We believe the time has come to review the regulatory environment for these instruments."

Lugar is chairman of the Senate Agriculture Committee and Gramm is chairman of the Senate Banking Committee. The Agriculture Committee has jurisdiction over the Commodity Exchange Act. The Banking Committee has historically taken an interest in derivatives issues, especially as they affect banks and other financial institutions.