It’s something we struggle with from our earliest days at school: the art of sharing. But should the grownups at the Securities and Exchange Commission and the Commodity Futures Trading Commission really be spending their time on it? Some of the witnesses at day two of the joint hearings on harmonizing regulation between the two agencies didn’t think so.
A debate formed among participants on a panel contemplating enforcement techniques over whether the supervision of derivatives markets should be divided between the two agencies or simply given to a primary regulator with the option to cooperate on investigations on the blurry edges of the delineation.
One argument was that the regulation of derivatives should be separated between the two agencies by virtue of the nature of the underlying asset on which a specific derivative was based. Derivatives of securities would fall under the jurisdiction of the SEC while those based on commodities would fall under the purview of the CFTC. That way, expertise at one agency would be focused on a smaller concentration of instruments. The opposition argued that untangling the mess of securities- and commodities-based derivatives was too time-consuming and that one agency ought to assume primary responsibility for the market.
Current legislative proposals would give the agencies joint rulemaking power over elements of the markets. Specific supervision authority has yet to be sorted out. The hearings indicated that it likely won’t be before Congress acts. The two regulators are exploring possibilities, but their top management seems to think they need new legislative powers before they can act on much.
Columbia Law School Professor John Coffee told the commissioners and their chairmen that where swaps were concerned they would be entering “a brave new world” of oversight in a previously unregulated area. He suggested creating a joint task force on swaps, staffed with examiners from both agencies who could look at the way derivatives were evolving, not just the ground they had already trod. CFTC Commissioner Bart Chilton countered that the CFTC already had a “deep bench” on swap-related oversight, and that the area was hardly new territory.
No one questioned the idea that the agencies should share information and resources. Breaking down the “silo structures” inside the agencies and between them was something every witness could endorse. But spending both agencies’ time hammering out jurisdictional divisions? That was clearly a separate matter, one that some said could drain away months—if not years—of time the regulators could be spending on actually monitoring the market.