[Federal Register: November 23, 1999 (Volume 64, Number 225)]
[Proposed Rules]
[Page 65669]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



17 CFR Parts 34 and 35

Concept Release Concerning Over-the-Counter Derivatives

AGENCY: Commodity Futures Trading Commission.

ACTION: Concept release; withdrawal.


SUMMARY: On May 12, 1998, the Commission issued a concept release
reexamining its approach to the over-the-counter derivatives market.
The Commission has decided to withdraw the concept release.

Commission, Commodity Futures Trading Commission, Three Lafayette
Center, 1155 21st Street, NW, Washington, DC 20581, (202) 418-5100.

SUPPLEMENTARY INFORMATION: The Commodity Futures Trading Commission
issued a concept release concerning over-the-counter derivatives on May
12, 1998 (63 FR 26114). In light of the comments received, the
Commission has determined to withdraw the concept release from further

    Issued in Washington, DC on November 17, 1999 by the Commission.
Jean A. Webb,
Secretary of the Commission.

Concurring Remarks of Commissioner Spears Withdrawal of Concept
Release on Over-the-Counter Derivatives

    The Commission's May 1998 Concept Release on Over-the-Counter
Derivatives has been widely perceived, both within the derivatives
industry and among other financial regulators, as indicating an intent
to expand the Commission's regulatory reach with respect to OTC
derivatives. In view of that perception and any legal uncertainty it
may have created, I agree to withdrawal of the Concept Release.
However, as one of the Commissioners who signed off on issuing the
Concept Release, I also wish to make clear my intent in originally
approving publication of that document.
    The Concept Release was published in May of 1998. At that time,
five years had passed since the last major Commission action involving
OTC derivatives (the 1993 swaps, hybrids and energy exemptions). As
noted in the Release's preamble, the OTC derivatives market had
experienced a number of significant changes during that five-year
period. In light of those changes, I viewed the Release strictly as an
appropriate information gathering document. Thus, as stated in the
preamble, the Release was published in hopes that the comments received
would ``* * * constitute an important source of relevant data and
analysis that [would] assist [the Commission] in determining whether
its current regulatory approach continues to be appropriate or requires
modification.'' \1\ More importantly, the preamble also clearly states:

    \1\ 63 FR 26114, May 12, 1998.

    The Commission has no preconceived result in mind. The
Commission is open both to evidence in support of easing current
restrictions and evidence indicating a need for additional
safeguards. The Commission also welcomes comment on the extent to
which certain matters are being or can be adequately addressed
through self-regulation * * *\2\ [emphasis supplied]

    \2\ Id.

Concurring Remarks of Commissioner Erickson

    I concur with the Commission's decision to withdraw the Concept
Release on Over-the-Counter Derivatives because, in my view, the
document has been rendered moot by subsequent events. The Commission
published the Concept Release in May 1998, it asked the public to
comment on a number of questions, and the public did so. No rules or
orders were proposed and nothing related to the Concept Release
currently is pending before the Commission. Moreover, representatives
of the four federal financial regulators that comprise the President's
Working Group on Financial Markets stated that they would use the
comments received by the Commission to inform their study of OTC
derivatives. I assume the public comments assisted the Working Group in
preparing its report, which was issued on November 9, 1999.
    I am concerned, however, about the potential precedent established
by today's Commission action for future Commission actions, future
Commissions, and, more broadly, for other federal agencies. I have
reviewed 31 comment letters submitted to the Commission in response to
the Concept Release and have examined related testimony given by
various interested parties before several House and Senate committees.
I am struck by the fact that despite the opposition the release
provoked in some segments of the industry and among other regulators,
nothing I saw cast any doubt on the substantive validity of the
questions themselves. In fact, it seems to me that the Concept Release
framed many of the issues we are currently discussing and, I believe,
sparked the current dialogue regarding whether our existing regulatory
structure fits today's financial markets.
    I am not willing to concede that it was wrong for the Commission to
ask questions about the application of its existing regulations in an
evolving market. In fact, I believe it is our duty as an agency to
constantly examine and re-examine the vitality and effectiveness of our
regulatory scheme, and we should not be expected to defer to anyone
else in fulfilling this duty. I am troubled that on a going-forward
basis, the Commission may feel obliged to delegate to others its
judgment about what kinds of questions are acceptable to ask about its
own regulations.
    Nonetheless, I am hopeful that through today's action this
Commission will rededicate itself to addressing the derivatives
industry issues unique to our time.

[FR Doc. 99-30513 Filed 11-22-99; 8:45 am]

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