Treasury Secretary Nicholas F. Brady yesterday vowed that if Congress takes control of stock index futures away from the Commodity Futures Trading Commission, he will not seek any other changes in CFTC powers.
In promising not to tamper further with the CFTC, Brady was attempting to reply to opponents who fear his plan is merely "the camel's nose under the tent" and inevitably will be followed by other attacks on CFTC authority.
Brady, who wants to move stock index futures to the Securities and Exchange Commission, said he would not try to promote a merger between the CFTC and the SEC, nor would he seek other jurisdictional changes that have been discussed. It is the first time Brady has made that promise.
A stock index is the equivalent of a basket of stocks. A futures contract on that index represents a bet on the future prices of those stocks. Stock index futures, which trade in Chicago, are used to hedge other investments or for speculation.
"Stock index futures are all that need to be fixed. If the proposal passes in its present form, I will oppose additional changes to the CFTC's jurisdiction," Brady told the Senate Banking, Housing and Urban Affairs Committee, whose members voiced concern about being asked to get into the bitter struggle between the CFTC and the SEC.
"There's going to be some bloodletting," warned Sen. Christopher J. Dodd (D-Conn.), about what would happen if the bill gets into a full-blown congressional fight.
Indeed, Brady's strong plea for Congress to act on his plan prompted Dodd to ask Brady why the Bush administration couldn't convince the CFTC and the SEC, both independent government agencies, to work out their disagreements over which should regulate stock index futures.
"The two agencies are acting like children," declared Dodd.
Brady said he had tried to get the agencies to work it out but failed.
"I had hoped for better," he said. "It didn't happen."
Brady, who served as head of the task force that analyzed the 1987 market crash, said the study proved that the stocks and the stock indexes were electronically linked in one market.
Brady contends that the SEC should become the single regulator for both stocks and stock index futures, a proposal that has drawn heated opposition from Chicago and its allies.
The appointment of a single regulator, Brady suggested, could help cure or slow the wide swings in the market that have sent small investors fleeing.
"I strongly believe that any market system that disillusions and disenfranchises the individual investor will lose its political standing and, in the end, its greatest strength," he said.
Although most of the violent market swings have been associated with computerized program trading, Brady said he did not oppose use of the programs.
Program traders, buying and selling simultaneously in the New York and Chicago markets, profit from small differences in the prices of stocks and index futures.
Brady's remarks drew heavy fire from Sens. Alan J. Dixon and Paul Simon, both Democrats from Illinois, who expressed concern about the impact of the Brady plan on the Chicago futures markets.
Simon said he believed that the wide market swings were produced not by the lack of a single regulator but by program trading itself.