A Justice Department ruling critical of a major program planned by the futures industry has stirred up a lively reaction from the industry and the federal agency responsible for its regulation.
Late last Friday, John H. Shenefield, assistant attorney general for the antitrust division, released a lengthy brief and statement targeting alleged defects in the proposal to form a self-regulatory body, the National Futures Association. Shenefield said the proposal, which provides for compulsory membership, probably violates antitrust laws and may be unconstitutional.
The enabling legislation which created the Commodity Futures Trading Commission in 1974 provides that the CFTC may approve such an organization formed by futures industry members.
The industry - not the CFTC - developed the NFA plan, which is intended to function along the lines of the National Association of Securities Dealers.
According to a CFTC spokesman, the NFA would case the regulatory burden of a commission by handling the registration and testing of commodity brokers and traders, undertaking arbitrations and performing a variety of other tasks now handled by the CFTC.
"If Justice really feels that (the NFA is defective), they've just killed the idea of self-regulatory," CFTC chairman William T. Bagley said yesterday, "If that's so, then give us $100 million so we can do our job."
Leo Malamud, past chairman of the Chicago Mercantile Exchange and a member of the committee which developed the proposal, said he was "flabbergasted" at the Justice ruling.
"Obviously, if it's illegal we're not going to do it," he said, "but I thought the whole manner in which Justice acted was unfair. They're putting the brunt of the criticism on the CFTC, when it was our proposal, not the commission's."
Malamud said compulsory membership is needed so that a large segment of the future industry which does not belong to any of the U.S. commodity exchanges can be policed.
"The logic of compulsory membership was so compelling that we didn't debzte it," he said. "That's the only way to make the thing work."
He said the strong minimum financial requirements and registration provisions of the New York and American stock exchanges set standards that do not have to be duplicated by the National Association of Securities Dealers. "They don't have compulsory membership but they don't need that in the securites industry, because to take money from the public, you've got to be a registered representative."
"You can take money from the public without following anybody's standards," he said. "We wanted to get rid of anybody in our industry who isn't willing to follow minimum financial and registration requirements."