INTERVIEW - Not all SEC, CFTC rules must be harmonized

WASHINGTON Fri Jun 19, 2009 8:20am IST

Traders work on the floor of the New York Stock Exchange, April 2, 2009. REUTERS/Brendan McDermid/Files

Traders work on the floor of the New York Stock Exchange, April 2, 2009.

Credit: Reuters/Brendan McDermid/Files

Related Topics

WASHINGTON (Reuters) - Although the Obama administration wants securities and futures regulators to harmonize their rules, it does not make sense for the two agencies to align all their regulations, the head of the Securities and Exchange Commission told Reuters on Thursday.

The SEC, which regulates securities, and the Commodity Futures Trading Commission, which oversees futures, have been asked to develop recommended rule alignments by September under the White House's plan to reform financial regulation.

Many securities, such as options on certain types of exchange traded funds, now fall under the jurisdiction of both regulators. At the same time, credit default swaps, widely blamed for contributing to the global financial meltdown, have fallen through regulatory cracks.

SEC Chairman Mary Schapiro said the SEC and CFTC will put together a team to go through areas where the agencies have differences in rules and approaches.

But she said: "At the end of the day, it probably does not make sense to harmonize everything because some of these products are quite different and certainly the market structures are quite different."

Schapiro said aligning the SEC and CFTC's rules against fraud and manipulation will be tackled early in the process.

The Obama administration's ambitious reform plan stopped short of calling for the SEC and CFTC to be merged into a single agency after lawmakers warned of the budget and oversight battles that would result within Congress.

TIGHTER OTC REGULATION

Schapiro said privately traded derivatives should be more tightly regulated but not banned outright as global policymakers attempt to crack down on a shadowy product that has been blamed for helping fuel the financial crisis.

The United States and European Union are pushing to regulate the $450 trillion over-the-counter derivatives market after credit default swaps nearly toppled American International Group, forcing a massive government rescue of the insurer.

The U.S. government wants to reduce the risks that derivatives can pose to the economy by having them cleared through central counterparties and potentially traded on exchanges -- a proposal supported by Schapiro.

But Schapiro said there is a place for over-the-counter derivatives, often customized financial instruments used as a hedge against price fluctuations or to spread risk. A core part of this market is divided between London and New York.

"I understand that there are going to be hedging and other needs for institutions that might not fit a standardized model," Schapiro said.

"But we need to nevertheless have a handle on what those products are, how they're being used and what are the risks presenting to financial counterparties," she said.

The Obama administration has proposed that standardized derivatives to be traded on exchanges and cleared in clearinghouses. It wants the users of derivatives to have a capital cushion to act as a buffer against losses.

A key question is what will be deemed a standardized contract and subject to mandatory processing through central clearing houses.

Financial regulators such as the SEC, CFTC and Federal Reserve are working at defining a standardized derivative and are looking at parameters such as volume and standard documentation.

The SEC and the CFTC are also hashing out ways to share oversight of derivatives markets.

(For more news on Reuters Money click in.reuters.com/money)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

School Shooting

School Shooting

Two killed, four wounded in Washington state school shooting.  Full Article 

Sundar Pichai Elevated

Sundar Pichai Elevated

Google's Pichai to oversee major products and services.  Full Article 

Need For Reforms

Need For Reforms

Euro zone risks "relapse into recession" without structural reforms - Draghi.  Full Article 

Diwali Sales

Diwali Sales

Gold sales jump about 20 pct for Diwali - trade body  Full Article 

World Bank Rival

World Bank Rival

Three major nations absent as China launches W.Bank rival in Asia  Full Article 

Wal-Mart India

Wal-Mart India

Murali Lanka appointed as Wal-Mart India operations chief  Full Article 

Health Of Lenders

Health Of Lenders

25 European banks set to fail health checks - sources.  Full Article 

Special Report

Special Report

Why Madrid's poor fear Goldman Sachs and Blackstone  Full Article 

India Insight

India Insight

Kalki Koechlin on her role as a disabled girl in “Margarita, With a Straw”  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage