When the SEC regulates derivatives

By Felix Salmon
June 4, 2009

Economics of Contempt labels me an “idiot journalist” for saying that the SEC is charged with regulating securities but not derivatives. As he points out, the SEC does too regulate securities — specifically, it regulates options on stocks, which are certainly derivatives, as well as exchange-traded options on foreign currency.

My bad. When I think derivatives, I think of swaps and futures in Chicago, rather than exchange-traded stock options — basically, I think of the kind of things which are either regulated by the CFTC, or not regulated at all (like CDS). But yes, there are some derivatives which are regulated by the SEC. My feeling is that all derivatives should be regulated, and that none of them should be regulated by the SEC, which should stick to securities. But of course I shouldn’t get ahead of myself, and for the foreseeable future it is indeed the SEC, and not the CFTC or anybody else, which is in charge of regulating a large chunk of the options market.

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6 comments so far

Very classy Felix. I dont’ think a lot of people can admit mistakes let alone link to others who point out their mistake.

At least he called you a journalist. Come to think of it, it does seem better to be called an “idiot x”, than just “an idiot”, which I normally get called.

Also, you’re on his blogroll. That counts for something.

Still, yesterday:

“Flattered? Yes, obvs. But OMGWTF?”

Today, idiot.

By the way, I eat sardines every day, because my health guru, Andrew Weil, has been recommending them for years. I also managed to order some Chocolate Olivers, no thanks to you, mate.

Just for fun, say something asinine about Adam Smith, so we can find out if Gavin Kennedy reads this blog.

May I call your attention to the first item in the Definitions section of the Securities Act of 1933:

“1. The term “security” means any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.”

Posted by rkillings | Report as abusive

In my humble opinion, it doesn’t matter which body ‘regulates’ derivatives.

The ‘right’ people will always be appointed, or placed in positions to control the extent to which the powers that be – and they be – are able to manipulate the markets to accomodate their own designs.

All of the adequate regulations were in place. They had been in place since 1933-34.

Why were the rules changed on the last day of Bill Clinton’s presidency by the same individuals who the Glorious Saviour Obama has placed in high office?

To regulate or not to regulate, THAT is the question.
Whether ’tis nobler in the mind to suffer
The slings and arrows of exponentially expanding credit,
Or to take arms against a den of vipers,
And by opposing end them? To die: to sleep;
No more; and by a sleep to say we end
The heart-ache and the thousand natural shocks
That flesh is heir to, ’tis a consummation
Devoutly to be wish’d. To die, to sleep;
To sleep: perchance to dream: ay, there’s the rub…


Words such as ‘Republicrats’ come to mind.

Honest democracy has evaporated into the airy firmament
and appears no other thing to me than a foul and pestilent congregation of vipers.

Purse strings and puppet strings…

But who holds the marionette?

He who cannot be named.

Such brilliance. Such scope.

For 200 years the United States was the light of civilization. Alas, all good things must come to an end.
Don’t forget who brought you Obama after all…


The man who hates the Russians for “getting Communism wrong”.

Posted by Baron von Lufthoven | Report as abusive

Actually, if you still believe that the SEC has a role in regulating securities, it probably makes sense for the SEC to regulate securities if the subject matter of the derivative is a security. Think of it this way–there’s no real fraud that you can commit when you have a futures contract on soybeans. A soybean can’t be manipulated. On the other hand, it is relatively easy manipulate (or at least commit fraud) on the stocks and bonds underlying options and CDS.

Posted by Brown Ram | Report as abusive

For anyone who has ever heard of the Salad Oil Scandal, fraud isn’t all that difficult to perform.

You just need a smile, and an excellent chef.

Posted by Baron von Lufthoven | Report as abusive
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