Thank you Mr. Chairman and members of this distinguished subcommittee. I am pleased to be here to testify before you today, and I thank you for the opportunity to discuss important issues relating to regulatory relief for U. S. futures exchanges. As I stated in testimony before your subcommittee in May, this continues to be an area of major significance and concern to me.
Given my background and experience, I tend to look at issues from the private sector point of view, that is, as a producer and businessman rather than as a regulator. Accordingly, I am acutely sensitive to circumstances that produce anticompetitive or unfair results. As I have stated repeatedly since I came to the Commission in August of 1998, I am pro-business and believe strongly in fair competition; those are the foundations which form the bases for my decisions as a regulator. Accordingly, in looking back over speeches and testimony I have delivered in the past year, I find consistent reiteration of my belief that our exchanges need significant regulatory relief. Well before any discussions of foreign exchanges and no-action requests, I was making rounds to agricultural groups, to industry participants, and to our domestic exchanges, listening to their concerns, and finding out what areas of regulatory relief could be addressed immediately, and in what areas the Commission needed guidance from our oversight committees.
In my testimony in May, I stated that I had convened a meeting of representatives from the three largest domestic exchanges to discuss the issue of regulatory relief. They provided me with a list of items to address some of their concerns, and I have shared that list with this Committee. In the intervening months, I have made consistent, strong efforts to try to get certain items on that list accomplished, specifically, relief from pre-approval of contract market designation rules, a payment for order flow advisory, a market maker program advisory, and a final resolution on dual trading orders. I chose those items from the exchanges’ lists as ones that could and should be addressed immediately, without changes in existing authority and without further direction from Congress.
However, as you know, regulatory relief issues have become enmeshed in matters relating to no-action relief for foreign exchanges. During the past months, I have consistently stressed my belief that the Commission should address the domestic exchanges’ concerns regarding these four issues prior to acting on foreign exchange requests, not for any protectionist reasons but simply for the reason that we had the authority, ability, and information necessary to act promptly, and accordingly should do so. Given the posture in which we now find ourselves, I will continue to press for this relief as quickly as possible, and I welcome input from this Committee on the ongoing effort.
Also, I welcome the opportunity we now have to address the joint 4(c) exemption petition from the three largest domestic exchanges. I believe that this should be a matter for comment on the public record, which, combined with responsive comments to the Commission’s recent release on proposed designation pre-approval procedures, will greatly enhance our ability to make correct determinations regarding appropriate regulatory costs and benefits in this and other areas.
As to other items on the exchanges’ lists (for example, large trader reporting, price reporting, account identification, and segregation of customer funds), it was my determination that these issues addressed core provisions of the Commodity Exchange Act, and that input from many sectors—including industry participants, agricultural producer groups, and especially our oversight Committees—is not only appropriate but necessary prior to Commission action. I continue to believe this is the correct approach, given the fundamental nature of these issues and their relationship to the customer protection and fraud and manipulation prosecution functions of the Commission. I look forward to receiving input on these matters.
Our domestic exchanges deserve the benefits of true competition and a level playing field, as do the industry participants who use these markets. This does not mean I believe in protectionism for the exchanges. However, it does mean that I wholeheartedly support efforts to revamp our Act and regulations to give the Commission, as an oversight agency, the flexibility to allow for development or improvement of technological advancements and to enable domestic exchanges to compete without unnecessary hindrances. Any regulation under which they operate should have clear benefits, which outweigh the costs of that regulation. I believe this calculus is critical in fashioning an appropriate regulatory framework. Furthermore, I believe our domestic exchanges are among the most dynamic enterprises in the world, and I will continue my efforts to allow them to compete without undue regulatory burdens.
If I may, let me reiterate a point I have made repeatedly in the past year: if the cost of doing business is too high, business will go where costs are lower, outside of the sphere of United States policy-making authority. We cannot afford to lose the exchanges, we cannot afford to lose other industry participants, and we cannot afford to lose the ability to make policy determinations that affect the global economy due to being overly regulatory. With that in mind, I commend your efforts to bring more rationality to the regulatory structure affecting domestic exchanges, and I will continue to work with you, with the industry, and with other regulators to achieve that goal. I thank you, and would be happy to answer any questions you may have.