Remarks of Commissioner Barbara P. Holum

Before the
Sixth International Derivatives Conference in London, England

Panel on
"International Cross Border Access: Promises and Problems"

June 29, 1999

Good afternoon ladies and gentlemen. I am pleased to be here today. The views which I am expressing here today are my own and are not the views of the Commodity Futures Trading Commission (Commission).

The explosive growth of electronic markets is challenging regulators everywhere to rethink how their system applies and how to address the need for a regulatory "concept" or "model" that preserves the objectives of regulation without unduly interfering with progress and innovation. These trends raise complex and novel issues that could profoundly affect the integrity and competitiveness of all markets and firms engaged in providing services globally. We are challenged to define new ways to reach what is increasingly an international network of information and trading media.

There can be no doubt that the globalization of the financial services industry will continue to expand in response to the dramatic technological developments. This technology and information revolution demands international cooperation. The Commission continues to pursue regulatory cooperation and coordination with foreign regulators, often in the form of Memoranda of Understanding or Information Sharing Arrangements. As we search for some common approaches and answers to the many questions created by the explosion of electronic commerce, I am certain that we will be looking at other models developed to address cross border regulatory responsibility.

As you may know, the Commission recently lifted its moratorium on placement of foreign terminals in the U.S. and instructed Commission staff to begin processing applications for no-action letters from foreign exchanges. We simply could not continue to impede U.S. access to the electronic global markets while attempting to define appropriate rules. The difficulty in defining how best to structure formal rules in this area is one reason that we have gone back to our case-by-case approach for now. However, a case-by-case approach is likely to become a less satisfactory approach as the electronic markets become the rule and the markets addressed by rules to date become the exception.

To discuss the many highly technical and complex competitive and regulatory issues facing U.S. markets and firms doing business abroad, the Commission established the Global Markets Advisory Committee (GMAC) and appointed me as Chairman. The purpose of GMAC is to assist the CFTC in designing its regulations and crafting its domestic and international policies to keep pace with these global changes.

GMAC is divided into three working groups: Working Group I on Electronic Terminals, Working Group II on Cross Border Business Impediments and Working Group III on IOSCO issues.

The Electronic Terminals working group is comprised of representatives of the U.S. exchanges and FCMs. It has focused on the regulatory provisions for placement of foreign terminals in the U.S., the correlation of those provisions with current U.S. regulations, and the competitive implications for U.S. exchanges.

The subcommittee on cross border business impediments, comprised primarily of FCMs, is focusing on the regulatory or operational impediments in conducting global business such as differing and/or duplicative regulatory frameworks, lack of transparency of rules and regulations and barriers to market access. They are considering such issues as cross-licensing, cross product netting, and choice of law with a goal of reducing costly regulatory overload caused by duplicative requirements.

The IOSCO working group provides an important conduit for information between IOSCO and GMAC. An important goal toward a thriving global marketplace is the harmonization of conduct of business rules. IOSCO's efforts to design best practices and prudential standards in a number of areas are critical to achieving the harmonization needed by our firms to operate efficiently in the global market arena.

A race to the regulatory bottom is not the approach that will secure the growth and development of our markets. At the same time, it is important to recognize the growth and sophistication of the markets today and the technological advancements that have contributed to that growth. Regulators should address common interests and rely on a broadly defined code of conduct which mirrors the global marketplace and which is grounded in principles of safety and soundness.

The U.S. futures regulatory structure, while sometimes viewed as heavy handed, is admired and duplicated often by new markets around the world. Certainly, the proliferation of new exchanges and the interconnectedness of the world financial markets dictates that minimum regulatory standards be established as a benchmark to guide countries in developing regulatory schemes.

Important regulatory initiatives to facilitate the global market expansion include:

• Best practices standards that set international benchmarks for regulation of futures and derivatives markets;
• Improved transparency in the markets;
• Improvements in the quality and timeliness of international information sharing; and
• The removal of legal or practical obstacles to achieving these goals.

In conclusion, how these issues will be resolved is now uncertain, but what is certain is that the open dialogue on solutions that is ongoing must continue. Meetings such as this one are important to that dialogue as regulators consider the best means to supervise their respective markets in evolving global market arena.