“LIFFE's announcement that it will trade single stock futures on five U.S. securities is the best possible evidence of the unfair competition the U.S. futures exchanges face today. LIFFE will trade in four months a product we are banned by federal statute from trading. For 18 years we have asked to have that ban lifted, but at every turn we have met delay. Those delays have only worked to the advantage of our foreign competitors.
“Now LIFFE and like minded foreign exchanges have free reign to establish liquidity in these important products and to cater to the global investors who are the customers of U.S. markets. Once these foreign exchanges establish thriving markets in these products, it will be too late to recapture this business for U.S. firms as well as exchanges. "The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) agreed last week on an allocation of regulatory responsibility for single stock futures. That agreement was the only legitimate precondition for elimination of the trading ban. Nonetheless, U.S. securities exchanges, intent on protecting their monopoly, continue to raise spurious road blocks against passage of the bill in the expectation that the shortened legislative session will work in their favor. If Congress fails to act now to pass legislation this year, it will preserve the securities exchange’s monopoly and confirm that foreign exchanges can poach U.S. markets.
“Throughout the legislative process over the past year, the futures exchanges have gone to great lengths to agree to provisions that would address all of the concerns expressed by interested parties. The proposed legislation and compromise reached between the CFTC and SEC address those concerns. The narrow interests of one industry should not override the interests of the U.S. financial markets. We fully understand the need to protect one’s competitive position and the tendency to protect one’s turf, but when that behavior affects the best interests of the United States, it is indefensible. The participants in global finance will not care if their trading venue is outside the United States. LIFFE promises to start trading U.S. stocks in January. It is unlikely that U.S. markets will recover once LIFFE and potentially others overseas get the lead in this important financial product.
“The historical record over those same 18 years demonstrates the flaws in their arguments. The successful trading of futures and options on securities indexes such as the S&P 500 irrefutably demonstrates that both futures and options can thrive simultaneously even when traded under disparate regulatory regimes. The securities exchanges that are objecting to our trading of this product would be granted an equivalent right to trade the same products at the same time on their exchanges. That is fair competition. It is contrary to rational economic policy to give securities exchanges a government sanctioned monopoly to protect their existing products from competition."
Background
Congress intended the Shad-Johnson ban on single stock futures to be temporary. "The [SEC/CFTC] accord prohibited futures (and options thereon) on single corporate and municipal securities. According to SEC and CFTC, the ban was intended to be temporary, and both agencies were to complete a study of the accord with a view toward lifting the prohibition. SEC officials told us that the study was to be undertaken 5 years after the accord was reached. But, according to the officials, it was never done because of the need to complete higher- priority studies following the 1987 and 1989 market declines." Quoted from the recent GAO Report: CFTC and SEC: Issues Related to the Shad-Johnson Jurisdictional Accord (Letter Report, 04/06/2000, GAO/GGD-00-89).
