CFTC to mull plan easing exchange trade regulation.

WASHINGTON -- The Commodity Futures Trading Commission will consider proposals next week that could eventually free the trading of some derivatives products on U.S. futures exchanges from the burdens of federal oversight.

One of the proposals to be considered will be a petition submitted last year by the Chicago Board of Trade to allow products to be traded among sophisticated investors without government regulation.

To date, futures and options contracts traded on the exchange have been subject to the commission's approval.

An exchange official said the goal of the proposed exemption is to enable the exchange to compete with the over-the-counter derivatives market by removing regulatory burdens.

The Chicago Board of Trade said the proposal, if approved, would open the door for offering new types of products, which could include municipal securities-related products.

"We're trying to look down the road at innovative products," an exchange official said. "We're doing a lot of market research."

Staff members at the commission are still working on the proposal, and it is unclear what actions will be taken on Monday or what changes, if any, will be made.

While most of the trading on the exchange involves professional investors, the Chicago Board of Trade said it wouldn't transfer any of its currently traded products to the exempted professional trading market.

In its petition, the exchange said its definition of a professional trading market would include banks, savings associations, credit unions, insurance companies, investment companies, commodity pools with assets of more than $5 million, employee benefit plans with assets exceeding $5 million, individuals with total assets exceeding $10 million, and any government entity or political subdivisions.

The proposal would allow the exchange to list new products, after it has notified the commission, as long as the trades are limited to a professional trading market. The exchange wouldn't have to wait for the agency's approval and it would establish its own audit trails for the trades.

While the exemption would enable futures exchanges to compete with the over-the-counter market, the Chicago Board of Trade said it would also offer investors advantages that are not available in off-exchange trading, such as price transparency and legal certainty.

In addition, investors would have reduced credit risk since trades would pass through clearing systems approved by the trading commission.

Investors would still have protection under the commission's existing fraud and anti-manipulation rules, the exchange official said.

The Chicago Board of Trade said its language in the petition is broad and doesn't exclude other futures exchanges from the proposed exemption. In that direction, the New York Mercantile Exchange said last month in a letter to the agency that it wanted to be included in the Chicago Board of Trade's exemption petition.

The agency also will separately consider a much narrower petition by the Chicago Mercantile Exchange that would exempt from regulation trades among professional investors in its rolling spot currency contracts.

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