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NYMEX Holdings, Inc. (NYSE: NMX), the parent company of the New York Mercantile Exchange, Inc. (NYMEX), the world's largest physical commodities exchange, today issued the following statement in response to the U.S. Treasury Department's "Blueprint for Financial Regulatory Reform" (Report).
We commend the Treasury Department in undertaking this thoughtful and detailed year-long review of the current structure of our federal financial regulatory system. We operate in a dynamic economy, and we believe that it is necessary and appropriate for government officials to engage in periodic reviews to assess whether current structures and policies have kept pace with rapidly evolving markets.
Thus while much of the current regulatory structure for the securities industry remains a hold-over from the Great Depression era, the regulatory structure of the futures industry was modernized by landmark legislation enacted by Congress in late 2000. As a result of the implementation of this legislation, which pioneered the use of broad-based core principles that establish flexible but demanding general performance standards to be met by regulated entities, the futures industry has seen a substantial surge in innovative new products and services that benefit not only the immediate market participants but also the broader U.S. economy as well.
The Report begins with several short term objectives. In particular, it is recommending an expansion in the size and role of the President's Working Group on Financial Markets (PWG).
"The PWG has played a critical role in coordinating policy analysis and response among federal financial regulatory officials, particularly in mitigating systemic risk, enhancing market integrity and investor protection and supporting market efficiency and competitiveness, and I welcome an expanded role for the PWG in coordination and communication among the federal agencies," said James E. Newsome, NYMEX President and Chief Executive Officer, who served as member of the PWG during his prior service as CFTC Chairman.
Beyond the specific short-term objectives, the Report otherwise sets forth longer term objectives requiring further study and review. In general, these objectives are quite sweeping in nature and generally will require Congressional action to implement new laws and thus will entail a process that may extend over several years.
NYMEX looks forward to working with Treasury, the CFTC, Congress and other interested parties on ensuring that any legislative proposal will continue to preserve and to support innovative and competitive markets and will enhance the ability of firms based in the U.S. to compete in a global marketplace. Futures exchanges regulated by the CFTC currently face competition not only from exempt over-the-counter derivatives venues in the U.S. but also from foreign exchanges operating under various levels of regulation overseas.
The Report commends the CFTC's current principles-based regulatory philosophy and indeed calls upon the SEC to adopt a similar approach. NYMEX strongly supports the emphasis in the Report on the value of a flexible core principles regulatory philosophy that can best keep pace with rapidly evolving financial markets. NYMEX also commends the Treasury Department for requiring that the SEC necessarily adopt fully various policies that are already well in place at the CFTC, including a core principles regulatory approach and a streamlined approval process for new rules and products, as a necessary condition preceding any possible future consolidation of the two regulatory agencies.
Finally, the Report refers to a consolidation of the SEC and the CFTC under an "evolutionary" framework that likely would extend over a number of years. NYMEX believes that a consolidation of these agencies does not represent the only way for rationalizing differences between futures and securities regulation. Moreover, any such review must be undertaken with care and necessarily must fully take into account the very real differences in market functions, products and regulatory missions. Thus, for example, there are critical differences in the use of performance bonds to secure open futures positions as compared with the use of margins in the securities business model.
