Futures industry leaders yesterday attacked suggestions for combining federal regulation of the stock and commodity markets and warned Congress that increased regulation of futures markets could drive that business off shore.
Officials of the Chicago Mercantile Exchange and Chicago Board of Trade said they agree with the Brady Commission's premise that trading in stocks, stock index futures and options have created "one market," but they disagreed with the conclusion that one regulatory agency should oversee all three.
The study headed by former senator Nicholas Brady recommended making the Federal Reserve Board the "superregulator" over all those markets, and Securities and Exchange Commission Chairman David S. Ruder has said his agency should take over stock index futures regulation from the Commodity Futures Trading Commission.Rather than concentrate federal authority, Leo Melamed of the Chicago Mercantile Exchange called for creating a new Intermarket Coordination Committee including representatives of all securities and futures exchanges, the SEC, the CFTC and the Fed.
He said the new group could be formed by expanding the SEC's Inter-Market Surveillance Group, which now exchanges data about potential market abuses, to provide broader regulatory coordination.
Melamed and Karsten Mahlmann, chairman of the Chicago Board of Trade, both warned that overregulation of futures will drive business out of the country. "The beneficiaries will be our foreign competition, not the American public," Mahlmann said.
Mahlmann said that trading futures contracts on stock indexes is "a uniquely American story that is know being copied and Xeroxed" around the world. "We would simply urge that you not make the U.S. futures industry the car industry of 1988."
Melamed, who was introduced by Committee Chairman Sen. William Proxmire (D-Wis.) as "the godfather of financial futures," strongly objected to the Brady Commission's recommendation to raise margins on stock index futures. Stock index futures make it possible to speculate on the overall direction of the stock market by buying theoretical baskets of stocks represented by popular market indicators such as the S&P 500 Index. About two-thirds of all stock index futures trading is in the Merc's S&P 500 contract.
Since Black Monday, the exchange has raised margins on the contract to about 15 percent, which Melamed contended was comparable to the down payment made by stock exchange specialists and other professional stock traders.