Futures Market Proposals Opposed : Chicago Mercantile, CBOT Chiefs Reject Super Agency

Officials of the Chicago Mercantile Exchange and the Chicago Board of Trade, where 80% of all stock futures trading occurs, rejected proposals Thursday that regulation of the stock and futures markets be merged under a single federal agency such as the Securities and Exchange Commission or the Federal Reserve Board.

In contrast, the presidents of the American Stock Exchange and New York’s main over-the-counter stock market endorsed increased regulatory coordination. Kenneth R. Liebler, president of the American Stock Exchange said that a single authority should regulate trading on stock and futures markets if the markets cannot agree on measures for change.

Third Day of Testimony

The Chicago market officials, testifying in the third day of hearings by the Senate Banking Committee into the Oct. 19 stock market crash, in effect counseled: Do nothing and let the markets coordinate themselves.

“The expertise necessary to achieve the cooperation exists within the exchanges themselves,” said Leo Melamed, chairman of the executive committee of the Chicago Mercantile Exchange. “Our suggested approach is through the private sector.” None of the several reports investigating the causes of the crash “lay any blame on the futures market,” Melamed added.

A presidential commission chaired by former Sen. Nicholas F. Brady suggested letting the Federal Reserve Board coordinate the regulatory activities of the Securities and Exchange Commission, which oversees the stock markets, and the Commodity Futures Trading Commission, which is responsible for the futures markets. SEC Chairman John S. Ruder has proposed that the SEC gain authority over the futures markets.

But Melamed said voluntary cooperation, together with other self-initiated moves in the Chicago markets to raise futures margin requirements to 15%, to impose “circuit breaker” limits on daily price fluctuations and to upgrade trading and information procedures would answer most of the Brady Commission’s concerns.

Melamed also urged senators not to legislate against controversial market strategies such as portfolio insurance, which during in the panic was widely believed to have magnified selling pressure.

“Strategies should not be legislated for or against,” said Melamed. “To the extent they did not work--which is what happened--they will not be used again.”

Karsten Mahlmann, chairman of the Chicago Board of Trade, urged that coordination between the SEC and CFTC should be enhanced and formalized, without either having dominance. “In our judgment,” he said, “such a system of coordination would be more effective than the creation of a super-agency structure.”

Phelan to Testify

In contrast, Joseph R. Hardiman, president of the National Assn. of Securities Dealers, and Leibler said they generally accepted the Brady Commission view that the securities and futures markets had in practice become merged into a single market. They agreed that futures margin requirements should be brought into line with those in force in the stock markets--a proposition the Chicago officials vigorously rejected--and conceded that trading systems should be upgraded and unified.

They also insisted their own markets worked reasonably well during the crash. “The vast majority of securities traded continuously during the period,” Leibler said.

John J. Phelan, chairman of the New York Stock Exchange, is scheduled to testify before the Banking Committee today.