Ruder Doubts SEC Will Win Control Fight
The head of the Securities and Exchange Commission said Tuesday that he did not expect Congress to give the agency control of the stock index futures market and stressed that the SEC is working with futures regulators to prevent a recurrence of the October stock market crash.
SEC Chairman David S. Ruder also indicated that his agency was examining ways of reducing volatility of stock prices and trading volume, which he attributed partly to the use of margin in the stock index futures markets.
In a speech to an economic outlook conference sponsored by the Conference Board, Ruder repeated his agency’s call to examine proposals for increasing coordination between the stock and futures markets and expanding the markets’ capacity to deal with unprecedented trading volumes.
Trading strategies involving stock index futures--representing “baskets” of actual stocks--have been widely blamed for worsening market volatility and contributing to the severity of the Oct. 19 market crash.
Ruder has contended that the SEC should have final regulatory power over all stock-related instruments, including the ability to overrule the Commodity Futures Trading Commission, which now regulates such products.
In testimony to the Senate Banking Committee earlier this month, Ruder asked for broad new powers over stock-related futures trading, such as increasing margin requirements and ordering temporary trading halts, to help prevent a recurrence of the crash.
Kalo Hineman, acting chairman of the commodities commission, in subsequent testimony resisted the idea of putting the SEC in charge of stock index futures trading.
During a news conference after Tuesday’s speech, Ruder defended his proposal but said he did not anticipate congressional support for SEC authority over stock index futures markets.
He said that although he was not supporting a broad congressional revamping of the regulatory system, the SEC’s proposals would result in “a more active and aggressive oversight of those markets” by his agency.
That at times could entail pressuring the commodities commission to make market changes, Ruder said. But he also said that he expected any future regulation to stem from “cooperative” proposals, and emphasized his agency’s commitment to work closely with other regulators.
Ruder said he and the SEC staff had met with Hineman and the staff of the commodities commission to discuss “a wide range of market-related topics.”
Similar joint discussions were held with representatives of the stock and futures exchanges and would continue as the SEC attempted to formulate concrete steps for preventing another crash, Ruder said.
In his speech, Ruder again called for higher margin requirements--the “down payment” a buyer must make--for trading stock index futures and for other measures to improve liquidity in the futures markets. He said the SEC would continue considering the effectiveness of delayed futures market openings.
Ruder said the “increased velocity and concentration” of trading within the stock and futures markets and between those markets had increased the probability of wild price swings. He said the increased intensity of trading was owed partly to the lower margin levels in the futures markets.
“Initial margin on stock index futures for non-market makers should be raised, at least temporarily, to levels harmonious with stock margin levels applicable to stock market professionals,” he said.
