Chief Futures Regulator : Gramm Says Markets Stronger Than in ’87

U.S. financial markets are stronger today than they were a year ago and could better handle a large selloff of stocks, Wendy Gramm, the chief U.S. futures regulator, said Thursday.

“I think that the markets today are stronger and better able to deal with large volumes than in the past,” Gramm, chairman of the Commodity Futures Trading Commission, said in an interview.

She said a crash like that of October, 1987, is unlikely at this time. Most people, she explained, don’t think stocks are overvalued,

But, she said, even if there were a push to sell stocks, the markets would be able to handle the pressures better.

“I think that if participants in the market were to decide at some point in time that the market is overvalued and decided to sell, you could have again a reduction in prices.”

However, “even if there were such a situation, we wouldn’t face the same problems that we did last October,” Gramm said, citing the steps the New York Stock Exchange has taken to increase its trade-processing capacity.

Looking to next week’s election, Gramm said George Bush would be better for the markets than Michael S. Dukakis, who might be tempted to over-regulate.

Gramm, the wife of Republican Sen. Phil Gramm of Texas, said: “The vice president has a very long record of experience in regulatory issues . . . in the financial market area, and he understands that if you impose regulations whose costs exceed the benefits, that that will be bad for markets.”

Expects to Win Fight

Gramm said that, judging from the proposals by some of Dukakis’ economic advisers, “I would have some concerns that there might be an overly regulatory approach” under Dukakis. Asked what specifically in Dukakis’s plans she opposed, she said regulatory restructuring and taxes on securities transactions.

Appointed CFTC chairman earlier this year, Gramm said she is confident her agency will be able to fend off congressional challenges next year to its jurisdiction over stock index futures.

Some on Wall Street blamed stock index futures, which are bets on the future value of baskets of stocks, for exacerbating the plunge in stock prices last October. Many firms buy and sell stock index futures instead of actual securities, and critics of the contracts claimed selling pressure in futures markets helped push down stock prices.

The most widely traded stock index futures contract is offered on the Chicago Mercantile Exchange.

After the crash, the chairman of the Securities and Exchange Commission, David S. Ruder, argued that his agency should take over regulation of stock index futures, a position strongly opposed by the futures industry, which fears the SEC would tie its hands with new regulations.

Ruder now says this is not a high priority issue for the SEC, but the jurisdiction switch has been included in market reform bills due to be reintroduced in Congress next year.

“I believe that the issue will be raised again, as it has been raised in the past,” Gramm said. “The question is whether or not it will be successful and I just don’t think so.”

Gramm also said that electronic futures trading will eventually be a reality, and it can coexist with traditional, “pit” trading.

U.S. law, according to Gramm, says futures trading must be open and competitive. “I don’t think it says that means open outcry in the pit. When I look down the road, what I see is a lot of trading with computers,” she said. All U.S. futures trading today is done in open “pits,” where traders shout offers to buy or sell.

“That doesn’t necessarily mean that open outcry in the pit will disappear. You have technologies side by side, and open outcry in the pit has been very valuable and useful and has existed for many, many years,” she said.

Many futures traders have expressed concern that computer trading might force them out of their jobs. CFTC is considering a proposal by the Chicago Mercantile Exchange to create an electronic, after-hours trading linkup with Reuters.