Newsome outlines agenda

Last February, when CFTC Chairman James Newsome addressed the Managed Funds Association (MFA), he said that the he and Securities and Exchange Commission (SEC) Chairman Harvey Pitt agreed in principal on the remaining rules for security futures

Unfortunately, the only thing that changed during that month was the goal from an early second-quarter launch to a hopeful secondquarter launch.

"I have two primary objectives for any rulemaking: first, no rule should be so prescriptive or burdensome that it effectively precludes an economically viable new product or platform from developing; and second, no rule should create an unfair advantage for one industry sector over another or lead to regulatory arbitrage," Newsome said at the FIA conference.

The sticking points, according to Newsome, are the CFTC's insistence on tour things: one, long option value should be permitted for margin on security futures products; two, Span margining should be permitted for calculating margin for offsetting positions carried in a futures account; three, mandatory liquidation should not be required; and four, the joint margin rule should not apply to the activities of a domestic broker dealer/FCM engaged in foreign transactions for foreign customers. "We are not going to cave on the issues we care deeply about," he said.

Newsome told Futures that he believes reaching an agreement on those four issues regarding a joint margin rule is very important in achieving his two primary objectives. Of final rules, Newsome said, "It is important to get it done quickly," but added, "If we don't get it right, the product may never trade."

In an interview, Newsome was adamant about making sure the futures industry's needs were met in the CFTC's discussions with the SEC. He also defended the SEC, stating that "Chairman Pitt wants to get it done, [but] other issues have developed that have a higher priority," he says, alluding to the Enron bankruptcy and Arthur Andersen problems that have taken the SEC's attention. He says no matter what, "we won't compromise on an issue we feel strongly about just to get [the regulations] done."

Newsome also addressed the implementation of the Patriot Act and the Feinstein Amendment. The Feinstein amendment would give the CFTC regulatory authority over previously unregulated OTC markets, reversing some measures of the Commodity Futures Modernization Act (CFMA) passed 14 months ago. Newsome reiterated his support for the CFMA and cautioned that provisions of the act should not be altered as a knee-jerk reaction but only after appropriate investigations are completed and the true nature of the problem has been determined. He confirmed that the commission is investigating Enron's OTC trading platform and trading Enron conducting on regulated exchanges but added, "To date, I have not found credible evidence to justify such changes [to the CFMA]," he said.

In his speech to the FIA, Newsome said although the Treasury Department has the lead roll in the implementation of the Patriot Act, which includes anti-money laundering provisions that some in the industry see as a threat, the CFTC will participate actively in the rulemaking process.

"Our staff is working closely with the Treasury, other regulators and market participants to ensure that the goals of this legislation are achieved and are achieved in a manner that is fair and equitable across industry sectors," he said.

Newsome also said he is committed to modernizing rules for intermediaries, which the CFMA did for exchanges. It moved the CFTC's regulatory focus away from prescriptive rules toward core principals. He set June 21 as the date intermediary study will be completed by along with the appropriate rule amendments.