U.S. futures regulator wants ‘Eddie Murphy’ insider-trading ban

March 3, 2010

By Roberta Rampton and Charles Abbott

WASHINGTON, March 3 (Reuters) – The top U.S. futures regulator wants Congress to include as part of its financial regulatory reform package new securities-style firewalls and insider trading bans for commodities, the chairman of the Commodity Futures Trading Commission said on Wednesday.

The CFTC and Securities and Exchange Commission proposed the harmonized rules in October, many of which require authority from Congress. This is the first time CFTC Chairman Gary Gensler has indicated how soon he wants to begin implementing the new measures.

The CFTC is calling its insider trading ban the “Eddie Murphy rule” after the actor’s role in the movie “Trading Places,” in which traders stole an Agriculture Department report on the U.S. orange crop and then placed positions on the market.

Gensler said the House version of the reform bill included some of the harmonized measures, and said the CFTC will suggest legislative provisions to the Senate on other measures.

“We will provide language to the Senate as they consider financial regulatory reform legislation,” Gensler said in testimony prepared for a House Agriculture subcommittee hearing.

“Chief among these recommendations are reforms to fiduciary standards for investment advisors and prohibitions on using misappropriated government information to trade in the futures markets,” Gensler said.

The Senate banking and agriculture committees are each working on draft bills to tighten oversight of banks and capital markets in the wake of the recent financial crisis.

The Agriculture Committee has jurisdiction over the CFTC.

“In real life, using such misappropriated government information actually is not illegal under our statute,” Gensler said.

Commodities traders have said they are unaware of any modern real-life scenarios where a USDA report has been stolen and used for trading. The USDA has extensive measures to guard against the early release of its major reports.

Traders are concerned about the CFTC’s new proposals because those involved in buying and selling the cash products underlying futures trade naturally have insider information about market fundamentals. [ID:nN0583313]

Futures brokers could also see changes in their ability to share information with clients.

The House bill included new requirements for firewalls within commodity trading firms, similar to those in place for securities dealers, Gensler said.

“Without parallel protection in the futures markets, trading desks could use information developed by research arms before that information is shared with the firm’s clients, raising serious questions about the integrity of the firm’s services to its clients and confidence in the markets,” he said.

((roberta.rampton@thomsonreuters.com; +202 898 8376; Reuters Messaging: roberta.rampton.reuters.com@reuters.net))

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