CFTC CHIEF SAYS MARKETS NEED NEW LAWS TO COMPETE

CFTC CHIEF SAYS MARKETS NEED NEW LAWS TO COMPETE

Speedy passage of a new Commodity Futures Trading Commission law is important to help U.S. financial futures and options markets compete globally, Wendy Gramm, CFTC chairman, said.

U.S. exchanges face increasing competition from markets in other countries, underscoring the need for U.S. regulators to streamline their oversight and thus enable the markets to thrive, Mrs. Gramm said in an interview with Knight-Ridder Financial News Tuesday.U.S. futures volume in 1991 fell for the first time in 22 years, partly

from competition but also from factors such as the U.S. recession, Mrs. Gramm noted.

"These markets are much more competitive than manufacturing and other areas, because competition is only one button away on the telephone," she said.

A bill to reauthorize the CFTC - which regulates trading in all futures and options exchanges - has been debated by Congress for more than three years.

The bill is now at an advanced stage, with House and Senate versions under scrutiny by conferees, but several controversial issues still threaten to hinder its progress.

Mrs. Gramm said she was "very hopeful" that reauthorization legislation would be passed "expeditiously" this year.

Mrs. Gramm, who has been in charge of the CFTC since 1988, said the rapid global integration of financial markets has made passage of new provisions in the law increasingly important to boost the competitiveness of U.S. markets.

Although the CFTC has obtained funding from Congress since its authority expired in 1989 and has carried on day-to-day business without suffering, Mrs. Gramm said the commission has been hampered from improving its oversight in many areas.

"There are a lot of authorities that we have asked for . . . we need to get those authorities so that we can move forward," Mrs. Gramm said.

Among the more controversial issues in the reauthorization legislation are proposals to restrict dual trading and to decide which regulator would set

margins for stock index futures and which one would oversee new hybrids that are not clearly either securities or futures.

Dual trading, whereby operators can trade for themselves while also executing orders for customers, is a common practice in many futures markets worldwide. However, many customers believed the practice left the door open for trading abuses.

In May, the Chicago Mercantile Exchange banned dual trading, but the ban has been increasingly criticized by Chicago brokers, who say dual trading raises market turnover by allowing more participants and thus leaves the market less efficient and more costly to customers.

Yet, Mrs. Gramm said she supported some restriction on dual trading. ''There are some circumstances where we feel even with a good audit trail" to keep tabs on any irregular trading behavior, "some people would get around it."

"I am not convinced it has reduced liquidity," Mrs. Gramm said of the CME ban on dual trading.

She added that in one respect, dual trading could boost market participation if customers perceive the system to be more clean of potential wrongdoings.

Setting of stock index margins has already drawn heated debate, with the CFTC, Federal Reserve and Securities and Exchange Commission among the contenders.

Other aspects of pending legislation important to the performance of U.S. futures markets - although less closely linked to day-to-day market activity - are moves to formalize CFTC contacts with foreign regulators, Mrs. Gramm said.

"There's a recognition around the world that there are no boundaries as far as fraud is concerned," she said.

For instance, to streamline investigations, Mrs. Gramm said the CFTC needed more official authority to cooperate with foreign regulators and more authority to promise that certain information from foreign regulators would remain confidential.

The CFTC also wants more formal authority to obtain information from unregulated affiliates of operators under CFTC oversight.

Mrs. Gramm defended the increasing use of computerized trading, saying that this did not sound the death-knell for the pits. "There aren't any markets as liquid as the pits," nor as fast, she said.

She concluded that many involved in the reauthorization legislation have grown weary.