CBOT Testimony Says Futures Regulation Is Out Of Step With Reality,Calls New Laws That Provide Fairness And Clarity

The antiquated laws governing U.S. futures trading threaten the competitiveness of U.S. markets and must be changed, the Chicago Board of Trade said today in testimony before the U.S. Senate Agriculture Committee. The CBOT said four dynamic market factors * globalization, technology, competition, and a changing customer base * have rendered U.S. regulations outmoded and incapable of ensuring competitiveness for U.S. markets over the long term. CBOT Chairman David P. Brennan said in testimony, "Faced with massive market changes and entering a new millennium, we have to ask: Has government regulation kept pace with these changes? The answer, unfortunately, is 'no.' Clearly, we need a more streamlined, enlightened structure that will enhance our markets, not handicap them. We urge the Congress to enact a new regulatory approach based on oversight, not overkill." CBOT President and CEO Thomas R. Donovan, also appearing before the Senate Committee today, said, "CBOT members and their customers have suffered for too long under an outmoded federal regulatory structure that is costly and unfair. We will continue to work with Senator Lugar and other Congressional leaders in pursuit of updated regulations that protect the public interest, promote fair competition, and prevent government from chilling innovation." To highlight the disparities in futures regulation, the CBOT referred specifically to the start-up electronic trading systems that are exempt from regulation. Brennan compared exchange regulations with banking laws, telling the Committee, "You can't open a new bank and avoid banking regulations. It would be unfair to existing banks that must follow the laws. Yet that unfairness now exists with futures regulation." In March 1999, the CBOT and Chicago Mercantile Exchange proposed a framework for regulatory reform aimed at achieving fairness and clarity in derivatives markets. The plan called for more exchange autonomy, access to exchange markets for customers of banks and broker-dealers, elimination of restrictions on futures based on individual stocks and stock indexes, and regulatory exclusion for privately negotiated derivatives. In addition to regulatory reform, the CBOT is pursuing several strategic initiatives to meet the changing demands of global customers. The exchange deploys state-of-the-art technology to route orders electronically to and from CBOT members in the pit. The CBOT entered into an alliance with Eurex, the largest derivatives exchange in Europe, to strengthen electronic and open outcry trading worldwide. The CBOT also is developing a plan to change to a for-profit structure.