Among the reforms for the world's ailing financial system, there should be an efficient system of sharing market surveillance information among U.S. agencies such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the Treasury, SEC Chairman Christopher Cox told a congressional committee recently.
Cox argued for a structured system of rapidly shared information among the agencies, also including the Federal Reserve and the Department of Labor, but he stopped short of advocating combining any of the agencies.
"Communication and coordination among regulators serving distinct but equally important purposes must also be a priority for regulatory reform," Cox told members of the House Committee on Oversight and Government Reform, which quizzed leading regulators, including former Federal Reserve Chairman Alan Greenspan.
The memorandums of understanding the SEC has signed with other federal agencies are ad hoc arrangements and they're not enough given the interagency turf battles, Cox said. What are needed are "better information flows among regulators, to communicate meaningful information sooner." This calls for "an overarching statutory scheme that anticipates and addresses these needs," Cox said. "Through the sharing of market surveillance information, position reporting, and current economic data, federal regulators could get a more comprehensive picture of capital flows, liquidity and risk throughout the system.
"First and foremost, close the regulatory gaps that I have described with respect to investment bank holding companies, with respect to municipal securities, with respect to credit default swaps, [and] harmonize the regulation of economically competitive products that currently are regulated by the CFTC and the SEC."
A merger of the CFTC and the SEC was first proposed last April by Treasury Secretary Henry Paulson, who said it would "bring greater consistency to regulation where overlapping requirements currently exist" (see NGI, April 7). At the time Cox said the idea had merit and "deserves serious consideration."
However, his CFTC counterpart, Acting Chairman Walt Lukken, was more reserved on the subject, noting the distinct functions of the futures market and the mission of the CFTC. "Many of the benefits of a unified regulator can be immediately gained through enhanced coordination and information-sharing between the agencies."
CFTC Commissioner Bart Chilton was more direct. "The CFTC and the SEC, while both financial regulators, oversee two completely different types of markets and consequently have two completely different sets of statutory and regulatory [schemes]."
In last week's hearing Cox went on to call for "a new global framework for regulations and standards," noting the round-the-world impact of the financial crisis. "American investors simply cannot be protected any longer without help from fellow regulators in other jurisdictions, because so much of the fraud directed at investors today is international in scope."
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