The Commodity Futures Trading Commission moved to tighten its controls on the participation of foreign companies and governments in the U.S. futures markets in three decisions yesterday.
After a daylong discussion with frequent allusions to the difficulty the agency has had in supervising Latin American countries' participation in the coffee futures market, the five-member commission tentatively approved the following:
The abolishment of undisclosed foreign omnibus accounts.
The requirement that foreign principals designate an agent in the U.S. for service of legal documents.
The revision of reporting forms to elicit information on the size of foreign holdings in the futures markets similar to that required on domestic accounts.
Currently, foreign omnibus accounts are used by foreign governments, as well as foreign and U.S. individuals and companies with numbered Swiss or Caribbean bank accounts to mask the identities of the true principals involved.
This loophole in the Commodity Exchange Act, which the CFTC administers, has led to abuse of a variety of regulations, especially that which places limits on the size of speculative positions permitted in some markets.
In some instances, these accounts - say, for instance, a Swiss bank - have refused to disclose to the agency the identity of the principal they trade for under the banking secrecy laws of their country. This defense to disclosure will not be permitted under the regulations proposed yesterday.
Another difficulty for the CFTC - that of serving notice of legal action on foreign accounts - would be eliminated by the requirement that foreign accounts have U.S. agents for service of process. This would ensure that the CFTC, other federal and state authorities and private individuals can take full administrative and court action against any civil or criminal violations involving a foreign account.
Figures released by the commission at the hearing revealed that 544 traders on U.S. commodity exchanges traded for foreign accounts in the period June, 1976 through February, 1977. The largest number traded grains and the soybean complex on the Chicago Board of Trade.
In the coffee, cocoa and sugar markets, those traders held 26 per cent of the total "short" or sell-side open interest in those markets during that period, while they held 24.3 per cent of the "long" or buy-side open interest. Their market share of the grain and soy complex market was substantially smaller - 3.5 and 3.7 per cent, respectively - because of the much larger volume in the Chicago pits than on the New York exchanges.
"The proposed regulations really reach two issues," CFTC Commissioner John V. Rainbolt II said.The need for better information and better control. We need to detect who is in the market place in order to do an adequate job of surveillance. We're trying to do that while still recognizing that futures is an international market. We don't want to impose selfdefeating revisions."
The regulations approved yesterday will publish in the Federal Register for public comment. After 60 days, they will be given final review before the commission votes on their adoption.