Futures Industry Prepares Its Defenses
U.S. futures exchanges, brokers and regulators hold an annual get-together here in sunny Florida this week in the shrinking shadow of Black Monday.
In past years, the annual meeting of the Futures Industry Assn. has been an occasion for the industry to congratulate itself for stunning growth and for exchanges and brokers to gripe about government strictures.
This year, the industry has put aside squabbles over issues such as tougher trade auditing to assess the fallout from October’s stock market plunge.
“Oct. 19 is not going to go away. People are still looking for a cause,” said William Seale, Commodity Futures Trading Commission member.
For many in Congress and on Wall Street, the cause was trading in futures and options on stock indexes, centered in Chicago. Critics have argued that low-cost entry into these markets helped pull capital out of stocks in October and exacerbated the price plunge.
While stable stock prices of late may have lessened futures leaders’ fear reprisals, many are still bent on mounting a full-scale defense of the industry.
“There may be no action in Congress this year,” said one industry lawyer. “But next year, when the CFTC is up for reauthorization, critics will be front and center.”
The Chicago Board of Trade has launched an unprecedented lobbying campaign on Capitol Hill and invited numerous congressional staff to visit its trading pits to dispel notions about wild and woolly futures speculators.
Key Legislators Attend
The futures convention this week is a chance for exchanges, lawyers and brokers to woo lawmakers.
Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, and Sen. Patrick Leahy (D-Vt.), chairman of the Senate Agriculture Committee, lead the long list of legislators attending the meeting who are expected to protect the industry’s interests in Washington.
The convention will also mark the debut of Wendy Gramm, the new chairman of the Commodity Futures Trading Commission. A former White House budget administrator with no previous experience in futures, Gramm has surprised skeptics with her unswerving defense of the industry.
In her first press conference, Gramm toed the industry’s line, fending off criticism of the commission, futures margin requirements and computerized program trading.
“I don’t think it is necessary or appropriate to drastically change the regulatory structure. What the market needs is stability,” she said.
Futures exchanges, which in the past have been openly antagonistic toward CFTC, now are concerned that Congress may fold the agency into the Securities and Exchange Commission, where their special interests may be less well understood.
Gramm rejected a suggestion by SEC Chairman David S. Ruder that initial futures margins, which are deposits paid up front, be hiked to between 20% and 25% from the current level of 15%.
Gramm sees eye to eye with Chicago Board of Trade Chairman Karsten Mahlmann, who has been shuttling between Chicago and Washington with a slide show devoted to the margin controversy.
Point Not Mentioned
The Washington press corps was recently invited to view Mahlmann’s handiwork. To illustrate his point, the Chicago official said an investor who bought one CBT stock index futures contract worth $123,625 on Oct. 14 would have paid $46,500 in margins by Oct. 20, the day after the Dow Jones industrial index fell more than 508 points.
Someone who bought a basket of stocks on Oct. 14 worth the same amount, according to Mahlmann, could have put no money up by Oct. 20.
Mahlmann neglected to point out that the investor in stocks would have paid substantial margin on Oct. 21, after losing a bundle on the securities.
Gramm also rejected charges that computerized program trading may have aggravated the stock market dive in October.
Futures exchanges have slapped price limits on stock index futures since October, and the New York Stock Exchange has moved to curb program trading on especially volatile trading days.
Futures leaders are hoping that as stock prices creep back up, exchanges tinker with rules and Congress’ 1988 calendar gets more crowded, the prospects of government intervention will diminish.
They are putting their hopes behind the recommendations of President Reagan’s task force on the stock market crash, headed by financier Nicholas F. Brady.
