SEC And CFTC Issue Joint Report On Regulatory Harmonization

Author:Mr Proskauer Rose LLP's Crisis Response Practice Group
Profession:Proskauer Rose LLP

On October 16, the Commodity Futures Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC") issued a Joint Report on Regulatory Harmonization (the "Report"), which had been requested by the Obama Administration in June, to "make recommendations to Congress for changes to statutes and regulations that would harmonize regulation of futures and securities." The Report describes the differences in the respective regulatory schemes of the agencies and makes 20 recommendations to harmonize their approaches to the regulation of futures and securities.

The agencies held their first joint public meetings in early September to hear testimony and seek written comments on issues regarding harmonization, including clearance and settlement, regulation of exchanges and markets, margin requirements, regulation of intermediaries, portfolio margining, enforcement and investor rights and remedies, and regulation of pooled investment vehicles.

Although some testimony and comments supported combining the SEC and CFTC, Congress is not currently considering any proposed bills that would do so. The Report stated that the recommendations of the SEC and CFTC would improve enforcement powers, market and intermediary oversight and operational coordination. SEC Chairman Mary Schapiro said that the agencies want to "fill regulatory gaps, eliminate inconsistent oversight, and promote greater collaboration."

The Report focuses on differences in regulatory framework and approach in the following areas: (i) product listing and approval; (ii) exchange/clearinghouse rule changes; (iii) risk-based portfolio margining and bankruptcy/insolvency regimes; (iv) linked national market and common clearing versus separate markets and exchange-directed clearing; (v) price manipulation and insider trading; (vi) customer protection standards applicable to financial advisers; (vii) regulatory compliance by dual registrants; and (viii) cross-border regulatory matters.

The Report contained the following recommendations:

Markets The enactment of legislation to facilitate portfolio margining, including holding futures products in self-regulatory organization securities portfolio margin accounts and holding securities options and certain other securities derivatives in futures portfolio margin accounts. The imposition of steps to facilitate the product approval process and the enactment of legislation to clarify the respective jurisdiction of the agencies; disputes...

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