SEC and CFTC to merge or not to merge?

It appears that not only the Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term brokers are undergoing a massive consolidation but that the Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term agencies are in a similar process as well. It's been widely speculated that CFTC and SEC might merge in order to create one leading regulatory agency that will oversee all derivatives and off-exchange products (Forex for instance). However, this move might have just been cancelled: The new Treasury Secretary Timothy Geithner was rumoredto have said that the move won't happen.

Whether it's a good or a bad thing is a matter for debate, but it is clear that the change is logical because both agencies oversee financial instruments: The SEC deals mostly with exchanges and the CFTC with commodities. Having two separate agencies doesn't really make sense and only creates double standards like the ability to operate a Forex brokerageunder an SEC umbrella and not under CFTC/NFAs one.

In my opinion, if the agencies merged it would bring more rationale and experience into the regulatory requirements that are imposed on the already diminishing Forex sector in the US.

Full Bloomberg article:

June 5 (Bloomberg) -- Lawmakers who attended a dinner with Treasury Secretary Timothy Geithner came away convinced he won’t push to merge the Securities and Exchange Commission and Commodity Futures Trading Commission, a proposal that already faces resistance on Capitol Hill, people briefed on the discussion said.

Geithner expressed his views to the leaders of the House and Senate committees that oversee the two agencies over a meal at the Treasury Department on June 3, the people said, speaking anonymously because the talk was private. House Financial Services Committee Chairman Barney Frank, who this week said a merger isn’t possible because of pushback from “entrenched interests,” confirmed the meeting took place and didn’t provide details.

Republican Saxby Chambliss, ranking member of the Senate Agriculture Committee that oversees the CFTC, said yesterday that he and House Agriculture Committee Chairman Collin Peterson had a “very good meeting” with Geithner. An SEC-CFTC combination is “not a solution to the problem,” Chambliss said in Washington.

Henry Paulson, Geithner’s Republican predecessor, supported the proposal as a streamlining measure because he said the SEC and CFTC regulate the same firms and similar markets. Combining the two agencies would strip legislative authority from two of the four committees that now have oversight.

Obama’s Regulatory Overhaul

Frank said yesterday the Geithner meeting was about regulatory restructuring and the administration may release its proposal within the next couple of weeks. Andrew Williams, a spokesman for the U.S. Treasury, declined to comment.

The Obama administration is working on a plan for overhauling U.S. regulation of Wall Street, which Geithner may release this month. The SEC regulates stock exchanges and financial companies that sell securities and the CFTC oversees trades in commodities from orange juice to foreign currencies.

The House Financial Services and Senate Banking committees have jurisdiction for the SEC, and the House and Senate agriculture panels play a similar role with the CFTC. Hedge funds and securities firms regulated by the SEC and CFTC participate in both equities and commodities trading.

Congress has been holding hearings as it prepares legislation rewriting rules after the biggest financial crisis since the 1930s forced investment banks such as Lehman Brothers Holdings Inc. into bankruptcy and triggered U.S. rescue programs for banks, insurers and automakers.

‘Logic’ for Combination

SEC Chairman Mary Schapiro, at a Senate Appropriations Committee hearing June 2, said there “is a logic” for combining the two agencies, and vowed the SEC and CFTC will improve cooperation overseeing credit-default swaps and other financial products if Congress decides they shouldn’t merge.

CFTC Chairman Gary Gensler said at the same hearing that Congress shouldn’t combine the agencies in a “merger for merger’s sake.”

House Financial Services Committee ranking Republican Spencer Bachus also attended the Geithner dinner, according to people familiar with the meeting.Richard Shelby, the top Republican on the Senate Banking Committee, said in an interview yesterday he attended the meeting and declined to offer details.

Senate Banking Committee Chairman Christopher Dodd and Senate Agriculture Committee Chairman Tom Harkin didn’t attend, people familiar with their plans said.

Frank has said he’s aiming to get a comprehensive regulatory reform bill passed in the House by July that would create new authority to unwind non-bank financial institutions and monitor firms for systemic risk.

To contact the reporter on this story: Alison Vekshin in Washington atavekshin@bloomberg.net.

Last Updated: June 5, 2009 00:00 EDT