The chairman of the Commodity Futures Trading Commission, in an apparent attempt to bring attention to the budget and staff restraints of his agency, yesterday recommended that all commodity options trading be banned in the U.S.
In a sharply worked statement, chairman William T. Bagley said, "The outright banning of trading in a given market is the epitome of government overregulation, but thatis exactly what I will recommend to this commission."
He added, "Simply stated, we are strapped for funds and are being starved by Congress. Thus deprived of resources to adequately regulate, we are forced to overregulate - that is to ban commodity options trading altogether."
In remarks prepared to be given at a graduate seminar at the University of Santa Clara in California, Bagley noted that the options field now consumes nearly 20 per cent of the time of the 450-member staff. The enforcement and surveillance staffs are small, with only 26 professional investigators employed in the regional offices.
Bagley said last week's rejection by the congressional Conference Appropriations Committee of a Senate recommendation to increase the CFTC's budget $1.5 million to $14.5 million a year was a critical blow for the agency. He described it as "our last chance to obtain additional funds."
Commodity options, which have won publicity through the bucket-shop tactics of some disreputable trading houses, are traded in a manner similar to stock options and permit an individual to limit his risk to the amount of the initial premuim. When used in conjunction with trading in commodity futures contracts, an individual can increase his chance of turning a profit - either on the futures contract or on the option.
The final vote by the five CFTC commissioners on the proposed regulations for commodity options and a proposal for a pilot program of trading in U.S. commodity options is scheduled for Aug. 23. The controversial industry has engendered much debate by the commissioners already. As one former CFTC staffer said yesterday, "At any one time, there were three votes against it."
Commissioner John V. Rainbolt, who headed the options committee, favors approval of the regulations and pilot trading program "as a better way to regulate the industry than banning it altogether."
Rainbolt said he sympathized with "the frustration out of which (Bagley's) statement was born," but said the commission's work on options was so far along that it would be better to carry through on the program.
None of the officials of the nation's nine commodity exchanges had been advised of Bagley's intention to make such a statement. Many of them made substantial investments in preparing proposals for the pilot program, which was approved by the commission April 5.
Under that program, options would be traded on the Chicago Board of Trade, New York Coffee and Sugar Exchange, New York Cocoa Exchange Inc. in lumber, GNMA certificates, gold, silver, copper, sugar, Deutschemarks and gold and silver physicals.
But John Forma, president of British-American Commodity Options. Inc., in New York, who is appealing a federal appeals court decisions supporting the CFTC's segregation rule on options to the Supreme Court, said the CFTC can expect to find themselves locked in further court battles if they try to halt options trading.