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CME Group, the world's largest and most diverse derivatives exchange, today issued the following statement in response to the U.S. Treasury Department's "Blueprint for Financial Regulatory Reform" and its call for, as an intermediate but not short-term goal, a merger of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).
"We commend the Treasury Department's efforts to examine how our nation's financial services regulatory system can be improved to ensure our continued leadership position and competitiveness in global financial markets. In particular, we are gratified that Treasury's proposal reflects our position that a merger of the CFTC and the SEC requires further study and is not a short-term objective, but rather an intermediate-term goal that should be addressed following further harmonization of the separate and very distinct regulatory frameworks applicable to futures and securities markets.
We agree with Secretary's Paulson's conclusion that the SEC and Congress need to act promptly to align more closely the SEC's systems and procedures with the governing philosophy of the CFTC. We understand that this reform of the SEC needs to be completed before the process of considering a merger between the two agencies can begin. We strongly agree with Treasury that significant reform of the securities regulatory framework, especially the adoption of a principles-based regulatory oversight structure like that already adopted by Congress for U.S. futures markets, is necessary before any such merger could occur. Principles-based regulation in U.S. futures markets has spurred unparalleled growth, innovation and competition in the futures industry since Congress' thoughtful adoption of the Commodity Futures Modernization Act of 2000 (CFMA). That landmark legislation recognized that exchange-traded derivatives markets compete with global futures and options exchanges, as well as with the less-regulated cash and exempt over-the-counter derivatives markets.
Notwithstanding our support for modernizing the securities industry regulatory framework, which is many decades old compared to the more modern system of regulation for futures markets, we are concerned that the Secretary believes that some of the core differences between the regulation of futures markets and federal securities regulation can and should be harmonized. Several of the differences that he targets for harmonization arise directly out of the differences between securities markets, which support capital formation, and futures markets, which exist to discover prices. The Secretary's suggestion that market rules involving margin, insider trading, customer suitability and short sales need to be synchronized suggest that there has not been sufficient understanding of the function of the differences of those rules in the two markets. The differences are organic, not accidental, and an effort to homogenize the two regulatory regimes is certain to cause more harm than good.
We intend to work with the Treasury, the CFTC, the SEC and the Congress to ensure that any harmonization efforts, whether in the short-, medium- or long-term, reflect the many critical differences between capital formation and risk transfer markets, as well as the prevailing regulatory standards in the global marketplace in which we compete. Without that understanding, Treasury's longer-term goals could result in an overly homogenized, less effective and less competitive model for regulating the U.S. financial services sector and put U.S. exchanges at a further disadvantage to foreign rivals. Oversimplification of margining systems, customer protection regimes and regulatory philosophies across different types of markets, financial instruments, customers, geographies and regulators would likely reduce the quality of our systems of market regulation, market integrity and customer protection while also impairing our ability to meet the competitive demands of each sub-segment of our very diverse financial services marketplace.
The market regulation and customer protection mechanisms in U.S. futures markets are unmatched and have been demonstrably effective for many decades, including during more recent market volatility and disruptive market conditions. These systems cannot be compromised. Indeed, throughout the recent turmoil in financial markets, the performance of CFTC regulated futures exchanges stands in welcome contrast to the OTC markets. Self regulation under the CFTC's principles-based regulatory regime coupled with a strong central counterparty clearing system that marks open positions to a legitimate market price twice a day works. In fact, it anticipates and exemplifies the wake-up call for greater transparency in the OTC markets.
As a global industry leader, CME Group looks forward to participating in the ongoing analysis, discussion and debate concerning Treasury's blueprint. We recognize that any adjustments to the current regulatory framework will likely not occur in the near future, and we are confident that Congress will be diligent in its review and careful to not unjustly harm the global leadership position of the U.S. derivatives industry."
CME Group (http://www.cmegroup.com) is the world's largest and most diverse exchange. Formed by the 2007 merger of the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT), CME Group serves the risk management needs of customers around the globe. As an international marketplace, CME Group brings buyers and sellers together on the CME Globex electronic trading platform and on its trading floors. CME Group offers the widest range of benchmark products available across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, agricultural commodities and alternative investment products such as weather and real estate. CME Group is traded on the New York Stock Exchange and NASDAQ under the symbol "CME."
