Streamlining Regulation; U.S. Financial-Services Rules Need Reform

The Washington Times (Washington, DC), August 2, 2005 | Go to article overview

Streamlining Regulation; U.S. Financial-Services Rules Need Reform


Byline: Gary DeWaal, SPECIAL TO THE WASHINGTON TIMES

New York Stock Exchange Chief Executive John Thain recently commented that in light of increasing competition and industry-wide consolidation there is a need to further expand and facilitate trading in a broader array of products, including options and other derivatives, if the exchange intends to compete on a global financial market stage. Hopefully, the right people on Capitol Hill were listening and stopped to consider what an utter regulatory nightmare such an ambitious (and necessary) undertaking would present under this country's current, archaic regulatory structure.

If change is essential for the United States' most important stock exchange to compete globally, shouldn't the same hold true for America's financial regulatory regime? There exists an urgent need to appoint a single financial services regulator to oversee all financial services in this country. This is especially true if the United States will remain an attractive location for financial-services-industry professionals to provide a full range of global financial services offerings to domestic persons and international clientele.

The FSR would essentially be an independent government agency, combining all the responsibilities of both the Commodity Futures Trading Commission and the Securities and Exchange Commission, while also overseeing the nation's insurance and pension industries. The single entity would also exercise oversight of over-the-counter dealers of financial services who currently escape regulatory scrutiny. This will allow the United States to move towards a regulatory model already employed by most of the world's other leading financial powers - having one agency that oversees stock, bond and futures trading, instead of maintaining two agencies which use different and often conflicting systems.

The current U.S. maze of relationships is an inefficient model. Consider the case of an institutional investor whose portfolio requires trading in both SEC- and CFTC-regulated financial markets. In order to trade in the United States, the investor must open two distinct accounts (a futures account and a securities account). This convoluted structure is in stark contrast to procedures in other financial centers, such as the United Kingdom, where only one account is required and where a single regulator oversees all financial markets.

The current U.S. system also adversely affects retail investors. Under securities rules, an individual may be barred from trading the component stocks of the S&P 500 because his broker determines him unsuitable. However, CFTC regulations might allow this same investor to trade a futures contract based on the S&P 500 index. …

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