Greenspan sees benefits to planned Eurex US exchange
Reuters, 11.05.03, 11:59 PM ET
By Ros Krasny
CHICAGO, Nov 5 (Reuters) - U.S. Federal Reserve Bank Chairman Alan Greenspan on Wednesday supported German-Swiss Eurex's application to open a U.S. futures exchange, praising the resulting potential for increased competition and innovation.
In a letter to the House Agriculture Committee prepared for Thursday's hearing on Eurex's application, obtained by Reuters, Greenspan said competition "has long served well both our overall economy and our financial markets by fostering innovation and efficiency."
House Agriculture Committee member Jerry Moran had posed questions to Greenspan on the potential impact of Eurex, the world's largest futures exchange, setting up a U.S. operation.
Eurex plans to open in the U.S. in February, trading futures and options on U.S. Treasury securities and on European stock market indices. Moran, a Kansas Republican, is chairman of the subcommittee on General Farm Commodities and Risk Management.
Moran's questions ranged from the potential impact of non-U.S. ownership on a U.S.-registered futures exchange and its implications for U.S. debt markets, monetary and economic policy, as well as the level of participation of non-U.S. firms as primary dealers for U.S. Treasury securities.
"Additional venues for trading futures on Treasury securities could offer expanded opportunities for traders and investors to hedge their positions in Treasuries, allowing them even more readily to assume positions in the market," Greenspan said.
And because Treasury securities are important vehicles for hedging on other markets, including corporate bonds and mortgages, "incremental improvements in liquidity of the Treasury securities market could augment the liquidity of these other markets as well," he said.
Higher liquidity could contribute to "investment in real capital and, ultimately, to economic growth," said Greenspan.
The Chairman's comments -- his first that specifically addressed the issue -- appeared to be a boost for the chances of Eurex's application for a U.S. futures trading license sailing through the Commodity Futures Trading Commission, which has the 2,000-page application under review.
The Chicago Mercantile Exchange and Chicago Board of Trade, the two largest U.S. futures exchanges, have urged the CFTC to reject Eurex's plan in its current form.
NEED FOR REGULATION
Greenspan said the U.S. was best served by permitting foreign-owned firms to enter its market but requiring that their U.S. activities be subject to the same regulation as domestic entities.
In Eurex's case, any concern about potential adverse affects on U.S. debt markets or on monetary and economic policy should be addressed by subjecting its U.S. operations to regulation and oversight by the CFTC, the regulator for the U.S. derivatives industry, he said.
Greenspan noted that a "significant proportion" of primary dealers in the U.S. Treasury securities market are foreign-owned.
Of these dealers, "in terms of their operations, funding and management, it is virtually impossible to tell the difference between these primary dealers and U.S.-owned dealers, except for their legal structures," which have not raised any particular concerns for the Fed, Greenspan said.
Greenspan said globalization and more diverse ownership of large firms made it harder to assign "meaningful national labels" to organizations such as exchanges.
"Some exchanges themselves are now publicly traded and as a result their ownership is no longer easily categorized. Ownership thus appears less and less useful as a consideration on which to base public policy decisions," Greenspan said.
Eurex AG is jointly owned by Deutsche Boerse <DB1Gn.DE> and the Swiss Stock Exchange.
Publicly-traded Deutsche Boerse is, in turn, more than 50 percent owned by U.S. and U.K. institutions, with German banks holding only about 1 percent, Rudolf Ferscha, Eurex's chief executive officer, said on Wednesday.
Copyright 2003, Reuters News Service |
