On the spring afternoon that Treasury Secretary Nicholas F. Brady fired his opening shot across the bow of the futures industry, he was wearing a red, white and blue tie decorated with tiny anchors and the slogan, "Don't Give Up the Ship."
Although most of Brady's experience with dangerous financial waters was gained during 34 years in the canyons of Wall Street, the Navy slogan seemed highly appropriate for the difficult, and perhaps unwinnable, battle Brady was about to enter.
Outgunned by a futures industry supported by the powerful agricultural lobby, Brady nevertheless promised to try and persuade Congress to change the way government agencies regulate some of the new investment products born in the computer age.
Brady's proposal, aimed at reducing the market volatility that scares small investors, would take away regulatory authority from the Commodity Futures Trading Commission (CFTC) and give it to the Securities and Exchange Commission (SEC). In turf-conscious Washington, the Brady bill was greeted with anger and bitterness by the Chicago futures markets, the agricultural industry and by many members of Congress who support the CFTC and see the bill as an attempt to undermine the commission's powers.
The Brady salvo has set off an intense lobbying effort on Capitol Hill, with futures industry lobbyists reportedly telling senators if they can have their vote on this one issue, they'll ask for nothing else. The Senate Agriculture Committee, believing it had the votes to defeat the Brady bill, has tried to get the measure to the Senate floor as quickly as possible, while Brady's supporters have been playing for time to round up additional backers.
The securities industry, to support Brady, quickly created a coalition of stock and options exchanges. That group, in turn, hired a Washington law firm, Patton, Boggs & Blow, to lobby for them and a public relations firm to handle press contacts.
Leaders of both the stock exchanges and the futures markets have crisscrossed the Hill, visiting senators and key congressmen. CFTC Chairman Wendy Gramm, trying to head off the bill, reportedly has visited with more than 30 senators. Even before the Brady bill was sent to the hill, officials of the Chicago markets visited with John H. Sununu, White House chief of staff, to tell their side of the story.
The rhetoric has grown steamier.
CFTC supporters argue that brokerage firms, which have seen their retail business decline, are trying to grab business from the futures markets. Supporters of the Brady bill contend that the Chicago futures markets, through campaign contributions and expense-paid trips to Chicago, have developed close ties to many in Congress. The futures markets acknowledge that they organize and encourage senators and congressmen to regularly visit Chicago and talk to exchange members. The legislators usually come away with a $500 to $1,000 honorarium.
The securities industry also hands out campaign contributions and honoraria to members of Congress, although perhaps in a less organized fashion.
The Brady bill debate has had its sharp edges.
Sen. Patrick J. Leahy (D-Vt.), chairman of the Senate Agriculture Committee and a major opponent of the Brady bill, complained in an interview that the SEC did "an unbelievable thing" by hiring Patton, Boggs & Blow to lobby.
"That in itself may backfire ... " he said. Neither Brady, a former senator, nor SEC officials would have any problem in contacting any senator directly, Leahy said.
Asked whether Patton, Boggs & Blow had not been hired by the coalition of stock exchanges, Leahy said, "Well, technically, yes. ... I don't think there is anybody who feels that this is an idea that sprung spontaneously out of the minds of Wall Street brokers."
At the SEC, the reaction was a vigorous denial.
"We don't hire law firms to lobby Congress. To suggest that we do is simply wrong," said Marianne K. Smythe, executive assistant to Chairman Richard C. Breeden.
For all the furor generated by the Brady bill, however, Capitol Hill wags contend there is a major gap between the fascination of professionals who track the issue and the apparent lack of interest shown by the public.
"It's a 'MEGO' issue," the skeptics declared, with MEGO standing for "My Eyes Glaze Over," a reference to the complexity of the subjects involved in the debate: stock index futures and margin requirements.
MEGO or not, the CFTC-SEC turf battle will pick up steam today when the Senate Banking Committee opens two days of hearings on the Brady bill. Until late yesterday, three Chicago futures markets spokesmen had been slated to testify. They included Leo Melamed, chairman of the Chicago Mercantile Exchange, who reportedly canceled after former senator Thomas Eagleton said he would testify. Eagleton quit the Chicago Merc last year after protesting its policies.
A spokesman for the Merc said Melamed did not cancel and would testify at a later time. He also called the Eagleton report "preposterous."
Brady, fresh from the Houston summit, will appear tomorrow, seeking the regulatory changes he claims will lead to safer and saner markets with less chance for sudden plunges.
Increasingly, the success or failure of the Brady bill appears to rest on his efforts. Within the limits of his time, Brady has been writing letters, phoning and visiting senators and talking with industry groups.
Brady does not have an easy task, as he recently discovered when he called the leaders of 21 farm and agribusiness organizations to a meeting at the Old Executive Office building. By all reports, Brady made few, if any, converts.
The tenor of the debate on the Brady plan was best shown, perhaps, by what took place prior to the White House meeting.
On short notice, the agricultural leaders were called to a meeting with Sens. Alan J. Dixon (D-Ill.) and Paul Simon (D-Ill.), who oppose the Brady bill, so they could get the senators' views before they met with Brady.
Joining Dixon and Simon in the pre-briefing briefing was Sen. Phil Gramm (R-Tex.). Gramm, a powerful figure in the Senate, is married to CFTC Chairman Wendy Gramm and has been a forceful opponent of the Brady bill.
Brady, a veteran of Wall Street who led the firm of Dillon, Read & Co., headed up the commission that analyzed the Oct. 19, 1987 market crash.
It was his study of the markets, Brady tells legislators, that led him to believe that it makes no sense for the SEC to regulate only stocks while the CFTC regulates futures contracts on baskets of those same stocks. Brady wants the SEC to have oversight over both in order to reduce volatility.
Brady's bill also would give the SEC control over the margin, or deposits required, on futures contracts. The Chicago markets now set their own margins.
The CFTC and the Chicago markets have objected to Brady's assertions, arguing that the markets are no more volatile than they have been historically and that there is no proof that margin levels add to volatility.