Greenspan, U.S. regulators urge action on futures laws

With the backing of two key lawmakers, U.S. futures exchanges are urging Congress to legalize futures contracts on individual stocks.

The effort picked up a key ally recently when Federal Reserve Chairman Alan Greenspan warned Congress that futures laws must be overhauled to avoid sending lucrative derivatives business overseas.

A high-level group of U.S. regulators has also recommended exempting all privately arranged derivatives from U.S. futures laws.

The over-the-counter derivatives market hit $80 trillion in 1998, according to the Bank for International Settlements.

Congress is grappling with the issue as part of its reauthorization of the Commodity Exchange Act, which governs all futures contracts. Stock futures contracts were banned by the Shad-Johnson Accord, enacted as part of the Futures Trading Act of 1982.

reports due

Lawmakers were concerned that the contracts could be easily manipulated and didn’t want to decide which federal agency should regulate them.

Senate Agriculture Committee Chairman Richard Lugar, R-Ind., and Banking Committee Chairman Phil Gramm, R-Texas, have asked for a report and legislative proposal on the issue from both the Securities and Exchange Commission and the Commodity Futures Trading Commission. Both are due today.

Derivatives exchanges in eight countries offer about 200 single-stock futures contracts on foreign companies, according to the Chicago Board of Trade.

The Chicago Board of Trade, for one, argues that because annual volume exceeds 2 million contracts, a true global demand for stock futures exists.

The board says stock futures, like financial and commodities futures, help institutions and individual investors guard against price swings in the market and create another risk-management opportunity.

“I want to underscore how important it is for us to address these issues promptly,” Mr. Greenspan said. “I see a real risk that if we fail to rationalize our regulation of centralized trading mechanisms for financial instruments, these markets will be lost to foreign jurisdictions.”