|FOR IMMEDIATE RELEASE:||CONTACT: CHRISTI HARLAN|
|Wednesday, June 21, 2000||202-224-0894|
Sen. Phil Gramm, chairman of the Senate Committee on Banking, Housing and Urban Affairs, made the following statement today at a joint hearing of the Banking Committee and the Senate Agriculture Committee on the Commodity Futures Modernization Act of 2000:
"Let me first thank Senator Lugar for his leadership on this issue. It has been a great privilege to work with him and the excellent staff of the Agriculture Committee on this bill. This is an effort that has been undertaken by the Agriculture Committee and the Banking Committee to do something that is important and, at the same time, very difficult.
"Whenever we work in areas that are cross-jurisdictional in Congress, the jurisdictional differences can become barriers to legislative action. I want to congratulate Chairman Lugar for seeing that that has not happened with this bill.
"As I see this bill, we are trying to do three simple, straightforward things that may not create great excitement among American consumers, but they are very important. They affect the well-being and prosperity and financial security of everybody who works, saves, invests and benefits from living in the greatest economy in the history of the world.
"First, we want legal certainty for swaps. Most people don't know what swaps are. I am almost incapable of fathoming the volume of swaps in dollar value. When I first heard the number, $80 trillion, I was convinced that an error had been made and that someone meant to say billion rather than trillion.
"This is a huge market that is critically important, and we cannot allow uncertainty as to the enforceability of these contracts to stand. We are all aware that that uncertainty occurs because of the off-exchange trading prohibition in the Commodity Exchange Act. The Commodity Futures Trading Commission might seek to deem these swaps to be futures, adding to this legal uncertainty. I believe that a similar uncertainty exists because the Securities and Exchange Commission might seek to deem them to be securities and argue that they were being traded without being registered with the SEC or fulfilling reporting requirements.
"I think it is very important that we give swaps legal certainty as it relates to both the CFTC and the SEC because, while we have two of the most enlightened people we have ever had as heads of the SEC and the CFTC, we have no guarantee that that will be true in the future, and regulation doth abhor a vacuum.
"Second, this bill provides authority for new financial instruments in the form of futures on individual stocks that are, in my opinion, long overdue. We had hoped that we could get the CFTC and the SEC to work out an agreement as to how they were going to regulate these new instruments. They made a legitimate effort, but they were unable to reach a conclusion as to how to share this regulatory authority. I have not given up hope that this can be worked out. I think it's important that it be worked out, in terms of letting these two important regulatory entities do what they do best. We need the SEC in all areas to exercise its authority against fraud and insider trading. We need the CFTC doing the things it can do. I think agreeing as to how they can share regulatory responsibility for futures on individual stocks could also affect areas where there are legitimate regulatory concerns about swaps.
"There are additional problems to address. We need to harmonize margins, and we have tax differences between options and futures, but none of these problems is insurmountable. I'm sure we'll refine the bill as we go along.
"Finally, this bill begins regulatory relief for securities. I am hopeful that we can go further. I don't believe that we have done what we should do in providing regulatory relief. The world is very different today from what it was in 1934. In 1934, we were willing to accept tremendous regulatory burden in trade for transparency. It was the right decision to make at the time, but with modern technology and the evolution of the markets, we have transparency at levels that never existed before.
"We have competitors all over the world who would very much like to see this goose that lays the golden egg – our financial markets – roosting in their coops. They are trying to attract it. They are unifying markets; they are reducing regulatory burden. I believe that we need to do that, too. No one can convince me that the regulations that were necessary to protect my parents are the same regulations that are necessary to protect my children in the financial markets. I think we would do well to remember the adage that to ask a society to live under old and outmoded laws – and I think you can say the same thing about regulation – is like asking a man to wear the same clothes he wore when he was a boy.
"I think we need a comprehensive review of regulatory burden in financial markets. We need to challenge every regulation and every law as to benefits versus cost, and when cost exceeds benefits, we either need to change it or repeal it. I think we've made an important start here.
"We face a difficult challenge passing this legislation in an election year and the waning days of this Congress, but this is an important issue. I intend to work hard to get this bill passed."