Futures Group Seeks More Clarity In Exchanges' Rule-Making

U.S. futures exchanges need a shorter leash when it comes to laying down new rules and introducing contracts, the industry's main trade body told regulators in a letter.

The Futures Industry Association asked regulators to ensure investors and exchange members have a better view as market operators range ahead with plans to handle riskier derivative products and construct trading platforms.

In U.S. securities and stock-option markets, new rules and products formulated by exchanges with regulators, and regulators' response, are published every day by the Securities and Exchange Commission.

A similar measure for futures exchanges would help participants in the market keep abreast of shifts in exchanges' trading rules and their handling of customer collateral, FIA President John Damgard wrote in a letter to the Commodity Futures Trading Commission.

"[M]embers and market users typically learn that a rule has been adopted or amended, or a new product has been approved, only after the registered entity has self-certified the rule or product submission to the Commission," he wrote.

The FIA, which represents futures-trading banks, brokers and private firms as well as exchanges, joins others in the U.S. futures market protesting the free hand exchanges have when implementing new market measures. Newedge, among the biggest futures brokers in the U.S., earlier this year called on market officials to reconsider the way futures exchanges can certify their own rules.

The industry in years past has sought for exchanges' rule-making process to become more transparent to the rest of the market. The issue has taken on greater significance as exchange companies such as CME Group Inc. (CME), IntercontinentalExchange Inc. (ICE) and others have in recent years expanded their clearinghouse services to cover more risky products like credit-default swaps.

The CFTC also is preparing for an influx of new swap-trading facilities, which are registered trading venues set up to handle the most common over-the-counter derivatives products.

Clearinghouses serve to hold collateral posted against outstanding transactions, reducing the risk should any member of the clearinghouse fail. Lawmakers and market authorities have pushed more trading in customized over-the-counter derivatives toward such facilities as one way to lower the systemic risk represented by trading in the $583 trillion OTC marketplace.

Daily publication of rules and product filings by exchanges would be an efficient and cheap way to keep brokers and investors up-to-date on what exchanges are planning to do, Damgard wrote in the FIA's letter. Submissions could also include a 15- to 35-word synopsis of what new rules would do, he suggested.

The FIA asked U.S. futures regulators to require exchanges and clearinghouses to offer a longer evaluation period for rules that change the way customer collateral is drawn upon in the event of a major clearing member's default.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

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