Securities and Exchange Commission Chairman David S. Ruder said Tuesday that he would look into possible steps to regulate U.S. foreign-exchange traders for the first time.
He was responding to a request from Rep. Edward Markey (D-Mass.), who heads the House Subcommittee on Telecommunications and Finance. Markey, at a hearing on a bill to enhance international cooperation in enforcing securities laws, said it was “staggering” that exchange markets were not subject to government oversight.
Referring to this as a possible “regulatory black hole,” he said he was particularly concerned by the possibility that people barred from dealing in the securities markets because of wrongdoing might still be able to trade currencies.
Ruder agreed and said he would be pleased to investigate whether a regulatory framework was advisable. “It has ramifications in terms of a global system for financial transactions,” the SEC chairman said.
He said the SEC, which polices U.S. securities markets to prevent manipulation and fraud, had never considered whether a separate regulatory body should be set up to monitor foreign-exchange dealers.
But he said there were some similarities between such an idea and the current regulatory framework of the bond market. Currently, both the SEC and the Federal Reserve, the U.S. central bank, share these responsibilities.
The SEC licenses broker-dealers who sell debt, including bonds, and equities, which include stocks. Ruder, describing the foreign-exchange market as highly professional, noted that currency traders by and large deal with each other, not with the public, unlike the case of securities markets.
Forex USA, a trade association for U.S. currency dealers, declined comment on the issue.
Markey said the foreign-exchange market had an enormous impact on other financial markets and on the U.S. economy. The daily settlement volume of international currency trades was $425 billion, 17 times the volume traded on Wall Street’s busiest day, he said.
In his other testimony, Ruder urged Congress to give the SEC new powers to promote international cooperation in the enforcement of securities laws.
Specifically, the SEC wants to be able to exempt confidential documents received from foreign authorities from disclosure requirements under the U.S. Freedom of Information Act or other laws.
“This provision is crucial to the commission’s ability to negotiate additional memoranda of understanding,” which are assistance pacts with foreign securities authorities, Ruder said.
He also urged enactment of two other provisions in a bill introduced last week by Markey at the SEC’s request.
The first would make explicit the commission’s rule-making authority to provide non-public documents and other information to domestic and foreign authorities.
The other would give the commission explicit authority to bar, suspend, or put limitations on securities professionals based on the findings of a foreign court.
A senior British regulator backed the SEC’s call for greater international enforcement cooperation.