U.S. securities and futures regulators asked Congress on Friday for more authority to police their markets, including legislation to help rein in insider trading in the commodity futures markets.
Reeling from the worst financial crisis in decades, the Securities and Exchange Commission and Commodity Futures Trading Commission wants to form a joint enforcement squad to root out fraud in the markets.
The regulators asked Congress for laws that would encourage whistle-blowers to come forward as well as legislation to expand the scope of insider trading prohibitions in commodity futures.
The Obama administration had pressured the agencies to resolve long-standing conflicts and present Congress with recommendations to align their rules by the end of last month.
The agencies have fought for years over jurisdiction, holding up product approvals and creating confusion and uncertainty in the marketplace.
Among the 20 recommendations to Congress, the regulators said it should be unlawful to trade using non-public information from any government authority in the commodity futures markets.
It certainly isn't nearly as radical as telling anyone who needs to use the markets that if they get information from any source that isn't broadly available to the world that they can't trade. This is a lot narrower than that, said former CFTC Chairman Philip McBride Johnson, who is now in private practice at Skadden, Arps, Slate, Meagher & Flom.
Regardless, other industry observers were impressed with the list of recommendations, including one giving the CFTC more authority over exchanges and clearinghouses, and another that could allow large institutions to place all their securities, securities options and futures into one account.
They did a superb job on this, said Susan Milligan, senior vice president with the Options Clearing Corporation.
In September, commissioners from the SEC and CFTC held an unprecedented two-day meeting to hash out their differences.
The meetings were amicable but many observers did not expect the regulators to come up with substantive recommendations.
On Friday, the regulators urged Congress to establish a process to ensure that products are approved within a firm timeline. Industry has long complained that jurisdictional bickering has delayed products and put them at a disadvantage.
At the heart of many SEC, CFTC disputes is whether a product is a security or a future. The agencies recommended that they be given a deadline to resolve such disputes and said a court could act as a tie breaker if they failed to do so.
The regulators also urged Congress to impose a uniform fiduciary duty on financial professionals who provide similar investment advice or services, regardless of whether the product is a security or future.
I believe these recommendations will help to fill regulatory gaps, eliminate inconsistent oversight and promote greater collaboration, SEC Chairman Mary Schapiro said in a statement.
Piecemeal regulation in the United States contributed to Wall Street's meltdown and the ensuing global economic crisis. In particular, lack of oversight in the over-the-counter derivatives market was exposed when a type of derivative called credit default swaps nearly toppled insurer AIG
Legislation to regulate the $450 trillion private swaps market is winding its way through Congress, but it is not clear whether a bill will be signed into law before the end of the year. The House Financial Services Committee approved a bill on Thursday to require many OTC derivatives to go through clearinghouses.
(Additional reporting by Christopher Doering; Editing by Dave Zimmerman and Steve Orlofsky)