CONFERENCE CALL: LEVITT TALKS UP PLAN FOR ‘LITE’ DERIVATIVES DEAL REGS

SEC Chairman Arthur Levitt Jr. argued the case for a new form of regulation over derivatives dealers at the Chicago Board Options Exchange’s 25th anniversary investment symposium.

And Secretary of Treasury Robert E. Rubin lobbied for support from business leaders in his department’s efforts to provide new capital to the International Monetary Fund.

Among those participating in the event last month were Philip Purcell, chairman and chief executive of Morgan Stanley Dean Witter & Co., and Nobel laureate Myron S. Scholes, principal and limited partner of money manager Long-Term Capital Management LP and a professor at Stanford University.

part of global strategy

Mr. Levitt’s talk centered on a proposal the SEC made earlier in the month that would allow over-the-counter broker dealers to participate in a “lite” form of regulation, with a goal of maintaining the United States’ first place in world markets.

Regulation under the proposal would provide a new category of broker/dealer for those that are counterparties to derivative transactions, and would be strictly voluntary, he said.

He said the proposal is not an attempt by the SEC to “reach beyond its jurisdiction. Clearly, this is not the case, this is not our intent. Our proposal merely seeks to give large securities firms the ability to voluntarily put their OTC derivatives in one U.S.-registered entity.”

The new regulation would carry capital and margin requirements tailored to derivatives dealers, he said.

He also discussed how the SEC had proposed a change to allow exchanges to introduce new products without first receiving agency approval, which would allow for experimental use of new systems.

“That’s a revolution, not evolution,” Mr. Levitt said.

Mr. Rubin, an early user of options in his Wall Street days, gave a l talk in which he described what he considers to be the four biggest challenges facing the United States:

* Keeping the country’s fiscal house in order.

* Globalization and interdependence of investment markets.

* Education.

* Bringing people outside the economic mainstream into it.

As part of a response to those challenges, Mr. Rubin said he favors broader disclosure, free and open markets worldwide, and support by the United States of the International Monetary Fund.

The day before his speech, the House of Representatives had dropped IMF funding from a bill.

Mr. Rubin said that while the chance the Asian crisis will spread to the United States is low, such situations create the need for the IMF.

Jack Wigglesworth, chairman of the London International Financial Futures and Options Exchange, asked Mr. Rubin if privatization of Social Security would be a positive step.

“No,” Mr. Rubin responded. “Social Security has been a remarkable thing in this country. Whatever we do with Social Security, there should be a guarantee” of some type for retirement income, he said.

Now everybody knows

In a separate speech, Mr. Purcell jokingly thanked Mr. Scholes for the Black-Scholes options pricing model, because it allows the press to publish annually the value of his compensation at Morgan Stanley.

On another note, he said the biggest challenge facing the options exchange is to make sure it has the liquidity to handle the expansion of derivatives markets.

William Johnston, president and chief operating officer of the New York Stock Exchange, another symposium participant, said in response to a question that one of his biggest fears going forward is that open-outcry exchanges like the Chicago board and the Big Board will not be able to compete in the future with electronic-based exchanges.

Crain News Service