The financial community expressed general opposition yesterday to the Securities and Exchange take over the regulation of financial futures from the tiny Commodity Futures Trading Commission.
From officials of the major exchanges involved - the Chicago Board of Trade and the American Stock Exchange's new Amex Commodity Exchange - to executives of some of the largest Wall Street brokerages, the early reaction to the SEC plan was both negative and feisty.
The proposal, set out in a 10-page memorandum form the commission to the General Accounting Office, caught the Wall Street and Chicago traders, as well as the congressional committees with CFTC oversight, offguard. The GAO requested the document as part of a lengthy audit of the beleaguered CFTC undertaken as part of the reauthorization review of the agency.
The memo's unexpected proposal "has some people up-in-arms," one Chicago Board of Trade official said yesterday, "but the rest of us can't believe that we'll have to fight this battle again."
The executive was referring to the SEC's opposition to the trading of financial futures, which include Government National Mortgage Association certificates, Treasury bills, Tresury bonds and commercial paper, repeatedly expressed since 1972.
At that time, the Federal Home Loan Mortgage Corp., a quasi-governmental body, had sought a risk-transfer of hedging device to aid the weakened housing market, but the SEC blocked attempts to start a mortgage futures market.
The issue was battled again as the 1974 Commodity Futures Trading Act was written. The SEC argued that if financial futures were allowed by Congress, such trading should be regulated by it, not a new agency. Ignoring the SEC plan, Congress specifically gave the jurisdiction for these markets to the CFTC. And in 1976, the SEC again tried to block the request by the Chicago Board of Trade to begin trading in GNMA futures. But the CFTC exerted its exclusive jurisdiction over the application and GNMA trading began last year. More than 23 million contracts were traded at the CBOT in GNMAs last year.
A representative of one of the major participants in the interest rate futures markets, W. Stevens Shappard, senior vice president of Paine Webber Jackson Curtis, said, "I think very few people know about it, but those that do are extremely concerned."
He said he expected officials of the major trading firms to express an interest in countering the SEC view at the upcoming reauthorization hearings before House and Senate Agriculture Committees.
A Senate Agriculture Committee source said yesterday the unexpected statement by the SEC "undoubtedly" would result in the commission requesting both the SEC and representatives of the firms and exchanges involved to testify at the hearings.
The Senate committee has scheduled testimony from Elmer Staats, comptroller general of GAO, for Feb. 22. Others will be heard in mid-March.
Robert K, Wilmouth, CBOT president, said of the memo, "I don't like it," He said the CBOT felt "only one agency should regulate" the commodity industry, "and if it's the CFTC, so be it ."
Wilmouth, who is scheduled to testify during the reauthorization hearings, said he would defend the CFTC's jurisdiction at that time.