THE COMMODITIES SCANDAL : Case May Increase Power of U.S. Futures Regulator

The indictment of 46 people on charges of illegal futures trading will increase the drive in Washington to beef up the authority of the Commodity Futures Trading Commission, experts said Wednesday.

As the indictments were announced in Chicago, the House Agriculture Committee was meeting to approve legislation that would enhance CFTC’s oversight of futures traders.

And even without additional legislative authority, CFTC--traditionally considered a weak regulator--has begun to play a more active role as a watchdog of the arcane and complex business of futures trading.

Agency Applauded

“Since its establishment by the Congress 15 years ago, the CFTC has matured into an able and effective financial regulator,” House Agriculture Committee Chairman E. (Kika) de la Garza (D-Tex.) said during Wednesday’s committee meeting. “I believe that evidence of that will be seen in the indictments.”

“I applaud the Department of Justice and the CFTC for their diligence and persistence in pursuing such a complex case,” said Rep. Glenn English (D-Okla.), chairman of the Agriculture subcommittee that oversees CFTC.

Signs that the agency has toughened its approach to regulating the futures markets became apparent in January, when the FBI raided the Chicago exchanges to collect some of the evidence that led to Wednesday’s indictments. CFTC Chairman Wendy L. Gramm called a press conference in Washington at that time to confirm that the commission had participated in the FBI’s investigation.

Then, in May, the commission itself spearheaded an inquiry into alleged abuses in the New York futures markets. And on Wednesday, Gramm announced that the commission would “immediately” write new rules to “address the types of misconduct alleged in the Chicago indictments.”

Present Laws Sufficient

The commission also has taken a number of actions against traders in conjunction with the futures markets’ self-regulating organizations, said Washington attorney Mahlon Frankhauser, who watches the industry. “Now,” he predicted, “we’ll see a lot more.”

Most experts believe that enough laws are in place to allow the commission to prosecute trading violations effectively.

“The fact that 46 indictments were handed down with some guilty pleas to follow shows that there are already laws in place,” said John Damgard, president of the Futures Industry Assn., a trade organization for futures traders.

English, the chief sponsor of the bill that cleared the Agriculture Committee on Wednesday, expressed his conviction that “there are very few, if any, issues that are not covered by existing law or will not be covered when this legislation is enacted.” The new law, he said, will “strengthen the system from within.”

The bill would authorize CFTC to conduct undercover surveillance operations with the assistance of federal agencies such as the FBI. “The legislation sends a message to the industry that if they’re going to (prosper), they’re going to have to live up to higher standards,” said English.

Seeks Registration

Senate Agriculture Committee Chairman Patrick J. Leahy (D-Vt.) said in a statement Wednesday that he would push the Senate to enact similar legislation in the fall.

The House bill would require all floor traders to register with CFTC. It would enhance the agency’s authority to suspend or disqualify traders if they did not pay fines levied against them.

The bill, which faces a vote by the full House in September, would also impose a number of new or strengthened regulations upon futures traders and futures markets. In key provisions designed to curb trading abuses, the bill calls for futures markets to increase surveillance programs and maintain accurate records of transactions in one-minute increments, decreasing to 30 seconds in three years.

Accurate record keeping is especially important in futures trading that occurs in pits where traders, shouting and using hand signals, purchase contracts that set a price and future date for delivery of commodities ranging from gold to pork bellies.