The proposed merger of a leading commodities exchange and the world’s most famous stock market raises a burning question for Washington: Does it make sense to have two U.S. regulators watching one gigantic exchange company?
Some policymakers and market experts say no.
“This merger just screams out for a consolidated regulator,” said Jaret Seiberg, senior policy analyst at Guggenheim Securities. “History tells us that having regulation split up between multiple entities doesn’t work.”
On Thursday, the parent company of the New York Stock Exchange said it had agreed to sell itself for $8.2 billion to the Intercontinental Exchange (ICE), a deal that would combine one of America’s most storied symbols of capitalism with an upstart commodities exchange in Atlanta.
The Commodity Futures Trading Commission oversees ICE and other exchanges used by investors to speculate on the future of commodity prices. The Securities and Exchange Commission mainly oversees stocks. Both deal with derivatives, complex financial instruments that can be based on either stocks or commodities.
The regulatory boundaries between the CFTC and the SEC have blurred as the markets have grown more complex and interconnected, and those who favor consolidation say Thursday’s deal serves as another reminder of why the two agencies should be one.
The idea has been tossed around for years, if not decades. In 2008, then-Treasury Secretary Henry M. Paulson Jr. proposed combining the agencies as part of a sweeping regulatory revamp.
The topic resurfaced when lawmakers were crafting the Dodd-Frank financial regulatory overhaul measure. But the idea was abandoned for fear that it would slow down or derail passage of the broader legislation, which was signed into law in 2010.
Now it’s back on the congressional agenda. Rep. Barney Frank (D-Mass.), co-author of the Dodd-Frank bill, introduced a measure in November that would combine the two agencies, his last-ditch effort to take care of unfinished business before he retires.
“The existence of a separate SEC and CFTC is the single largest structural defect in our regulatory system,” Frank said in a statement.
Republicans on the House Financial Services oversight subcommittee endorsed a similar idea in November, when they they released a report deconstructing the collapse of MF Global. The report bashed the SEC and the CFTC for not sharing information about the brokerage firm even though they jointly oversaw it, and recommended that the agencies merge or streamline their operations.
For years, those in favor of keeping the agencies separate have argued that their histories and philosophies make the two incompatible. When Paulson pressed to combine the two, the Chicago Mercantile Exchange pushed back, as did the parent company of the New York Stock Exchange, according to an article in the Futures Industry Association magazine. They said a merger would stifle innovation and add to bureaucratic red tape.
The SEC and the CFTC declined to comment for this story.
Chances are slim that any action will be taken, Seiberg said. The congressional committees that oversee the CFTC and the SEC don’t want to give up their turf — and the Wall Street fundraising potential that comes with it.
“It has almost no chance of ever happening,” Seiberg said.