Congress Passes Bill for Swaps, Single-Stock Futures
Washington, Dec. 15 (Bloomberg) -- U.S. lawmakers approved
legislation to slash rules for futures markets, end an 18-year ban
on single-stock futures, and keep the government's hands off
complex investments known as over-the-counter derivatives.
The measure was included in a spending package the House
passed 292 to 60 and the Senate approved by voice vote, capping
years of struggle between Wall Street firms, futures markets, and
stock exchanges over which markets should be regulated and by
whom. The bill now goes to President Bill Clinton for his
signature.
The plan is good news for banks, futures exchanges and energy
companies who say the U.S. will lose its share of the
multitrillion-dollar futures and derivatives market unless they
have more freedom. Lawmakers, regulators, and industry groups
reached agreement just days before Congress is set to adjourn.
``It is intended to keep America on the competitive edge with
our trading partners in this world economy,'' said Representative
Tom Ewing, an Illinois Republican and architect of the futures
bill. ``It also modernizes the system here so not only can we be
competitive in our financial industry, but we can be profitable.''
Competing Interests
The bill balances some of the competing interests of banks,
futures exchanges and stock markets and the lawmakers and agencies
that oversee them. Industry groups squabbled about who would be
regulated the most, with the Securities and Exchange Commission
backing the stock markets' concerns and the Commodity Futures
Trading Commission siding with the Chicago Board of Trade and
other futures exchanges.
The compromise package takes legislation the House passed in
October and adds two sections that prevent the SEC from regulating
OTC derivatives known as swaps except in cases of fraud and
manipulation, and keep the CFTC from overseeing derivatives sold
by banks.
Ewing and other lawmakers won the support of the Treasury
Department and other regulators after months of negotiations.
OTC derivatives are private contracts based on an underlying
bond, security, commodity, currency or other asset. The face value
of such contracts worldwide is about $94 trillion. Though similar
to regulated futures, they aren't directly governed by any laws or
rules, making it unclear how much power regulators have over how
they are used.
Bill Praised
J.P. Morgan & Co. managing director Mark Brickell praised the
legislation.
``The companies who rely on swaps as hedges and the financial
institutions -- the banks, brokers and insurance companies -- with
large swap portfolios now are more certain than ever that their
contracts will be enforced and that they keep the benefit of the
bargain,'' Brickell said.
The legislation also implements a tiered regulatory system
designed by the CFTC, with larger markets and investors receiving
more freedom from regulation and smaller commodities being more
protected. The agency now will adjust its new system to conform
with the legislation.
``The CFTC worked closely with Congress and the futures
industry to help design a regulatory structure that is tailored to
the specific products and participants of a given market,'' the
commission said in a statement. ``This approach will provide U.S.
financial markets the flexibility needed to maintain a leadership
role.''
In addition, the measure clears the way for both futures and
stock markets to offer futures based on a single company's stock,
such as Microsoft Corp. or Citigroup Inc.
``It's been a very long and arduous process, but I'm very
please with the opportunity to trade this new product,'' said
William Brodsky, chairman of the Chicago Board Options Exchange,
in an interview.
The CBOE, the largest U.S. options exchange, should be ready
to offer single-stock futures a year after the legislation is
signed, which is when the new law would let the investments be
sold to the general public, Brodsky said. |
