Time for a Proposed SEC – CFTC Merger?
Treasury Secretary Henry Paulson’s proposal to merge the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) is not a new one.
Robert Litan, a senior fellow at the non-partisan think tank Brookings Institute, told the Chicago Tribune that the Bush administration is using the distress in capital markets as a way to finally get these ideas a public hearing.
“A lot of these ideas have been suggested by people in both political parties for a long time but have gone nowhere,” he said.
The problem, as some industry insiders see it, is that the CFTC and SEC have fundamentally different institutional purposes. The CFTC operates on principles and works toward goals; while the SEC is a regulatory agency whose main function is to set rules for companies to follow.
The idea floats back and forth because some of the most influential players in the U.S. financial system would benefit more than others if these ideas came to fruition. For example, the CFTC’s lax and speedy policy for approving financial products has assisted in the Chicago Mercantile Exchange’s tremendous growth. The CFTC opposes the policy shift, because don’t want to fix what isn’t broken. On the other hand, the Chicago Board Options Exchange would benefit from the proposed union. Regulated by the SEC, the CBOE had trouble launching a derivative for the gold commodity and a merger could reduce delays.
Harmonizing the CFTC and SEC might make enable companies to obtain approval of proposed mergers and acquisitions more quickly, which could stimulate the economy by encouraging more capital markets activity. While eliminating the red tape, the move would also eliminate overlap and cut jobs within both organizations.
Recently, I had a meeting at one of the large exchanges that would be affected by a proposed merger of the SEC and CFTC. The conversation turned to their recent union with a long time competitor; the deal was just about to close. The firm was moving forward with the implementation of their business strategies and jobs had to be eliminated along the way. That same week, I attended the Chicago Floor Traders Alumni Association and listened as the conversation centered on the same trend; the loss of intellectual capital through changes in the financial industry.
Studies indicate that there is a positive correlation between intellectual capital and company productivity. In the struggling times we face today, do we want to add to the rising layoffs of financial professionals with an institutional merger? Not according to Bart Chilton, a Commissioner at the CFTC. He said in a recent statement that the public is more concerned about our rippling economy than reshuffling in Washington.
