Financial Regulatory Forum

US SEC, CFTC told to align rules to police markets

September 3, 2009
CFTC | SEC | USA

sec1   By Christopher Doering and Rachelle Younglai
   WASHINGTON, Sept 3 (Reuters) – The two main U.S. regulators policing the securities and futures markets were urged on Thursday to align their rules for ferreting out fraud, protecting investors and punishing wrongdoers.
   At the second day of an unprecedented joint meeting of the Securities and Exchange Commission and Commodity Futures Trading Commission, former enforcers and market experts pushed for a coordinated approach against fraud.
   “There is a day and night difference… This disparity calls out for harmonization,” John Coffee, a professor at Columbia Law School told the agencies, which are under pressure to resolve longstanding conflicts that have been laid bare by the financial crisis.
   The two regulators have significant differences in areas such as enforcement authority and their stance on market manipulation, civil penalties, arbitration, investor recourse and insider trading.
   “The Commodities Exchange Act does not recognize insider trading as a violation of law,” said Damon Silvers, associate general counsel of the country’s largest labor federation, the AFL-CIO.
   “This is a serious weakness… and appears to be an obstacle to meaningful oversight of the commodities markets themselves in the light of allegations of market manipulation in the context of the recent oil price bubble,” Silvers said.
   The comments came one day after a scathing report ripped the SEC apart for missing red flags going back as far as 1992 that could have uncovered Bernard Madoff’s $65 billion investment scam before he confessed late last year.
   The SEC’s inspector general report found the agency never properly examined or investigated Madoff’s trading and never took the necessary steps to determine if Madoff was operating a Ponzi scheme, despite numerous warnings.
    The SEC has recently appointed a new director of enforcement, made it easier for staff lawyers to obtain subpoenas and proposed rules to make investment advisers more accountable for their clients’ money.
   Richard Owens, a former federal prosecutor, urged the two commissions to consider a joint set of principals for imposing sanctions and enforcement policies.
   William McLucas, a former SEC director of enforcement, suggested taking a number of SEC and CFTC staff and putting them under one roof so that they could look at where there are problems in the markets and where the agencies should conduct investigations. SEC Chairman Mary Schapiro appeared open to this idea and said she was “fascinated.”
   McLucas implied the proposal was a fallback after recent talk of merging the two agencies appeared to have lost momentum in Congress and the White House. “We had an opportunity that was lost to consolidate the agencies,” he said.
   After years of taking a largely hands-off approach, the CFTC has moved to improve its oversight of markets since Chairman Gary Gensler assumed the top post in May.
   The CFTC is looking into establishing position limits for energy products, more than a year after oil prices soared to a record $147 a barrel, in an effort to curb excessive speculation. 
  As oil soared, many lawmakers criticized the regulator for not doing enough to tamp down the influx of hot money from hedge funds.
 (Reporting by Rachelle Younglai and Christopher Doering; Editing by Tim Dobbyn) ((rachelle.younglai@thomsonreuters.com; +1 202 898 8411)) Keywords: FINANCIALREGULATION/SEC CFTC
  
Thursday, 03 September 2009 16:58:04RTRS [nN03103694] {C}ENDS

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