CME Reacts To SEC-CFTC Letter On Single Stock Futures

Chicago Mercantile Exchange Chairman Scott Gordon and President and Chief Executive Officer Jim McNulty today responded to a joint SEC-CFTC letter about single stock futures and the Shad/Johnson Accord sent yesterday to Senate and House leaders: "We are concerned that the agencies were unable to resolve all of their jurisdictional issues and to submit legislation to end the ban within the time frame requested by Congress. However, we are encouraged that the agencies unequivocally agree that it is appropriate that U.S. futures exchanges be permitted to compete in world markets and offer U.S. customers the opportunity to manage risks by means of equity futures contracts. "The agencies have not committed to submitting the requested comprehensive legislative proposal in time to include it in the regulatory reform bill that will be considered during this congressional session. If that bill permits the over-the-counter market to trade equity swaps and permits OTC dealers to set up electronic markets to trade single stock equity futures, as has been proposed, the disparity in regulation between markets becomes even more pronounced. We favor legal certainty for the OTC market, but it is essential that regulatory parity and complementary relief be given to the futures exchanges contemporaneously with the relief granted to our direct competitors." Background: Eighteen years ago the Shad/Johnson Accord divided jurisdiction between the SEC and CFTC and included a temporary ban on most equity futures contracts. That temporary ban has lasted 18 years during which time single stock futures have thrived in the OTC market in the form of equity swaps and on option exchanges in the form of synthetic futures. Recently the President's Working Group and congressional leaders called for an end to the ban. On December 17, 1999, Chairman Lugar (Senate Agriculture Committee) and Chairman Gramm (Senate Banking Committee) asked Chairmen Rainer and Levitt for a "detailed report addressing the desirability of lifting the current prohibition on single stock futures together with any legislative proposals . . . no later than February 21, 2000. On January 20, 2000, Chairmen Combest, Ewing and Bliley asked the SEC and CFTC to create a "joint legislative plan for repealing the current prohibition on single stock futures . . . no later than February 21, 2000." Yesterday, Chairmen Levitt and Rainer responded by presenting "the current views" of the agencies.