CBOT Chairman Carey Testifies Before U.S. Senate Banking Committee On CFTC Reauthorization

Testifying before the U.S. Senate Committee on Banking, Housing and Urban Development today, Chicago Board of Trade (CBOT^®) Chairman Charles P. Carey commended the U.S. Congress for the passage of the 2000 Commodity Futures Modernization Act (CFMA).  Chairman Carey noted that while this major legislation, implemented by the Commodity Futures Trading Commission (CFTC), has largely been a success, some of the goals and promises of the CFMA have yet to be fully realized.

In his testimony, Carey brought attention to three specific issues that may warrant action by Congress, including stemming the potential for fraud resulting from a recent court decision, clarifying the definition of narrow-based security indexes, and addressing current margin treatment for security futures products.

Leading off his testimony, Carey discussed with the Committee the implications of the Seventh Circuit Court of Appeal’s opinion in the recent CFTC v. Zelener case.  Carey explained that the decision provides a road map for potential wrongdoers to offer fraudulent transactions outside the reach of the CFTC.  He further went on to say that such fraud involving commodities has the potential of tarnishing the reputations of exchanges, firms and individuals who engage in legitimate business activities in the futures and derivatives industry.

In addition to amending the law to protect the public from ongoing and future fraud bolstered by the court’s decision in the Zelener case, the CBOT requested that Congress continue the goal of reducing regulatory barriers to innovation in two areas.

First, the CBOT asked that Congress consider clarifying that the definition of narrow-based security indexes established by the CFMA does not include indexes on fixed income securities, corporate bonds and other non-equity securities.  Carey emphasized that “clarification of this definition is an important issue that deserves to be addressed at this time.”

Second, the CBOT asked that the Congress address the present inefficient and uneconomic margin requirements for single stock futures.  Carey explained the CBOT’s support to extend risk-based portfolio margining to these products.  In his testimony, Carey said, “The CBOT hopes Congress will take this opportunity to facilitate the margining of stock futures as futures contracts.”

Carey’s written testimony to the U.S. Senate Banking Committee provides more detailed explanations on the topics covered during today’s oral statement.  For copies of this written testimony, please visit www.cbot.com.