Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, November 11, 2008

CFTC Chair Outlines Reform Proposal

CFTC Acting Chairman Walter L. Lukken gave the keynote speech before FIA Futures and Options Expo, in Chicago today and put forth his vision of regulatory reform.  Specifically:

I believe the United States should scrap the current outdated regulatory framework in favor of an objectives-based regulatory system consisting of three primary authorities: a new Systemic Risk Regulator, a new Market Integrity Regulator and a new Investor Protection Regulator. This objectives–based framework is similar in concept to the reforms advanced by Treasury Secretary Paulson’s Blueprint and Paul Volcker’s Group of Thirty Report.

A new Systemic Risk Regulator would have the responsibility of policing the entirety of the financial system for “black swan” risks that could cause a contagion event and take preventative action against such occurrences. Such a regulator does not exist in the current framework but is absolutely necessary given the witnessed interconnections of our financial markets and the speed of the current global crisis. A new Market Integrity Regulator would oversee the safety and soundness of key financial institutions, including exchanges, investment firms and commercial banks whose failure may jeopardize the integrity of the markets. A new Investor Protection Regulator would broadly oversee investor protection and business conduct across all firms in the marketplace. This objectives-based framework focuses on risks from the macro to micro levels and would be a radical departure from the current structure. The different functions of the CFTC, as well as the SEC and the various banking regulators, would be dispersed among these three regulatory authorities.

The CFTC Chairman disagreed with SEC Chairman Cox's proposal for a merger of the CFTC and SEC:

One idea that has been put forth as both a permanent and interim reform step is a simple merger of the CFTC and the SEC. In Washington, this is code for the larger SEC—along with its rules-based model and culture—taking over the principles-based CFTC. In my view, this would be ineffective and would only reinforce our outdated regulatory structure. Simple merger is a recycled idea when bold solutions are needed.

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