Sen. Dick Lugar, chairman of the Senate Agriculture, Nutrition and Forestry Committee, and Sen. Phil Gramm, chairman of the Senate Committee on Banking, Housing and Urban Affairs, agree that high priority should be given this year to the reauthorization of the Commodity Exchange Act, particularly with the view to bringing laws and regulations up to date with the realities in the financial marketplace. They believe that the elements for consensus among the participants in the markets and among the regulators who oversee those markets can be reached, and they have directed the staffs of the Senate Agriculture and Banking Committees to prepare draft legislation that would achieve the following principles:

• Repealing the Shad-Johnson Accord. Since 1982, an artificial separation (called the Shad-Johnson Accord) has been in place dividing the regulation of futures and securities between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). The markets have moved beyond this division, and it is time that the law were changed. Among other things, this change will allow for the trading of futures on individual stocks.

• Harmonizing margin requirements. Part of the Shad-Johnson issue is the question of margin, or the role of "earnest money" to assure the ability of trading parties to honor their commitments. This issue is very difficult and complex when considered among the futures, options, and stock markets. The legislation will provide that margin levels are consistent across the various markets so that choice of investment instruments is made based upon the characteristics of the instrument itself, not upon which offers the least expensive margin cost.

• Reducing regulatory burden. Similarly, regulatory costs should not be the factor driving an investor's choice of financial instruments. The legislation will reduce fees and other regulatory costs and will do so in a manner that will not disadvantage one marketplace, or one instrument, over another. The regulatory test must be whether a particular regulation adds value to the markets instead of unnecessary costs. Input will be sought from market participants and the regulators in order to carry out this principle.

• Providing legal certainty for swaps. Swaps transactions account for the largest share of all financial derivative transactions. About two-thirds of the swaps market involves transactions by commercial banks. Legal certainty for swaps will be made clear and unmistakable.