Gordon appeared before a hearing held in Chicago of the Senate Committee on Banking, Housing and Urban Affairs at the request of Sen. Phil Gramm (R-TX), the Committee's Chairman.
Gordon urged Congress not to enact regulatory relief for one segment of the market in isolation because a partial solution could unbalance the financial services industry at the expense of many participants and their customers. "We have proposed a holistic approach to the problem that will bring legal certainty to the OTC [over-the-counter] market, regulatory relief to exchange markets and resolve the Shad-Johnson restriction for the OTC and exchange markets at the same time," Gordon said.
The current regulatory structure places U.S. regulated futures exchanges at a significant disadvantage to offshore competitors and the domestic OTC market, Gordon told the committee. "OTC competitors are converging with futures markets in all respects other than regulatory burdens," he said. "Overly detailed regulation of futures exchanges increases direct costs and time to market of innovative products," Gordon said.
Gordon urged the committee to end the 18-year-old "temporary" ban on most equity futures contracts mandated by the Shad-Johnson Accord, which also divided jurisdiction between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). "That temporary ban 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," Gordon said.
The CME "…ought to be permitted to trade these products without being subjected to multiple regulators and without changing the fashion in which we have conducted our business for more than 100 years," Gordon said. He proposed a division of responsibility between the SEC and CFTC to protect the SEC's mandate and eliminate competitive barriers that do not serve public market users. "Our proposal permits futures exchanges and securities exchanges to compete on their relative merits," he said.
Gordon noted that in the early 1980s, "we created a tremendously useful product, equity indexes, in the face of overwhelming opposition." Today, equity indexes have become among the most popular contracts on securities as well as futures exchanges. Futures trading of equity indexes has enhanced customer opportunity with none of the ill consequences predicted nearly two decades ago, he told the committee.
At the hearing, Gordon praised the CFTC Staff Task Force report proposing a new regulatory framework: "The commission has been both responsible and responsive to the concerns of all elements in the financial services industry," he said. "The tone of the CFTC's proposal is consistent with a progressive regulatory philosophy that depends on oversight and competition among markets..." and demonstrates "…a deepening understanding of the complex technological and competitive issues facing our markets and a commitment to providing much-needed regulatory relief."
