Closing Remarks
Chairman James E. Newsome
on the
Approval of U.S. Futures Exchange
Application for Contract Market Designation

At the CFTC Open Meeting Held on February 4, 2004

Philosophy since arriving at the CFTC

• I became a Commissioner at the CFTC in July of 1998. I brought to my job certain principles I believed were important to doing the job well.

• I believed you must go out and get an understanding of business issues from the people that were actually involved in the business.

• I believed hiring a good staff was vital.

• I believed it was important to develop relationships with market participants and customers in the industry that you can trust, and then LISTEN to them if you want to develop sound regulatory policy.

• I believed you should NEVER think that you are more knowledgeable than those people, although it’s ok to challenge them at times.

• I believed that in tough situations, you must be willing to listen to all sides, consider all arguments, but in the end, you must make decisions and stand behind them.

• Most importantly, I believed you must ALWAYS keep your word.

• These principles have guided me in my decision-making over the 5 and years of service as both a Commissioner, and more recently, as Chairman of this Commission.

Regulatory experiences under the CFMA

• Since the passage of the CFMA in December 2000, I have been focused on the Commission’s implementation of that groundbreaking legislation in the way it was intended by the Congress. In an oversight hearing last year, our authorizing Committee in the House gave the Commission what I believed to be a positive grade for our implementation of the Act.

• Implementation was challenging in some respects because the new law required the Commission to retire most of its rigid, cookie-cutter rules and adopt more flexible approaches to compliance with the Act.

• Flexibility is always more challenging than prescriptive rules, since the former requires one to think more creatively and make decisions accordingly. Of course, the decisions that come out of this structure are also open to more criticism since they are based on interpretations, which can differ from that of some commenters.

• While it has been challenging, I remain a supporter of this more flexible approach because it has resulted in fewer regulatory restrictions on innovation, technological progress, and competition in the futures industry. I firmly believe all of these things are good for the U.S. position in and the general operation of the marketplace.

• Given the inherent subjectivity that goes along with flexibility, we have been careful to not disadvantage one group over another in our review of new rules and applications and have worked hard to develop regulatory policy that yields a level playing field.

• This has become especially important as new players enter the field.

• USFE is a good example since it is a new, formidable player.

Things that were important to me in considering this application

• It was important to me that we accomplished several goals in our review of this application.

• One, that we first ensured that the application demonstrated to our satisfaction that the core principles for contract market designation were successfully met.

• Two, that the public was able to comment on all parts of the application that were not commercially sensitive.

• Third, that the Commission consider all comments, respond to each of them, and be able to defend our decisions.

• Fourth, that we felt comfortable going forward with the designation. By this, I mean primarily that the applicant had a clear understanding of what was expected from a regulatory standpoint.

• I needed to have comfort that the applicant was willing to cooperate with the Commission in establishing a positive working relationship as it begins operations in the U.S. market under our regulatory oversight. The new, flexible structure inspired by the CFMA depends on solid working relationships between the Commission and those we oversee.

• And finally, I believed that once all legitimate issues were appropriately addressed, the Commission should act quickly on the application.

Difficulty in considering application

• It’s no secret to probably anyone here that there were bumps in the road during the consideration of this application and that those public disagreements lengthened and expanded the Commission’s review of this application.

• This was the first time the Commission reviewed an application under such detailed scrutiny by the public and the Congress. There were several industry participants, who at times even became emotionally charged (and from both sides of the issue I might add) in constant contact with the Commission either orally or through multiple comment letters expressing their views. Because of the unprecedented high level of interest, this may be the most thorough review ever undertaken by the Commission.

• Also, the Commission and the applicant had limited experience in dealing with each other, which led to differences of opinion at times, most notably over the Commission’s regulatory authority.

• These public disagreements led to, among other things, questions from Capitol Hill to me asking if I had reversed by opinion since testifying before the House Agriculture Committee earlier where I was asked to outline the Commission’s authority related to consideration of the USFE application. Obviously, I have not.

Why I am comfortable with designation now

• However, these issues are behind us now. I believe that we have achieved a level regulatory playing field through our analysis of this application, meaning there will be no REGULATORY advantages or disadvantages when USFE enters the United States.

• As for whether or not USFE will be successful in this marketplace, only market users will have an opportunity to decide that, not the regulator. I have stated many times that this is the way it should be.

• Given today’s staff presentation and multiple other briefings conducted during the last several weeks leading up to this meeting, I believe the core principles for contract market designation are indeed satisfied.

• I am also proud of how the Commission’s process of considering this application has been transparent from the beginning. Our decision to hold two public comment periods and a public meeting to formally consider the application also signifies that.

• I am satisfied that we have fairly considered and adequately addressed all questions raised throughout the process, including those received during the comment period, during our Congressional hearing, and through follow-up letters from interested members. I also am confident that our decisions are both defensible and consistent with the framework of the CFMA.

• I am comfortable that USFE now understands our regulatory expectations and I look forward to continuing the development of this relationship. I believe it’s now headed in the right direction.

• Lastly, I believe it’s important to point out that the Commission is acting on this application as expeditiously as we possibly could have. That has been important to me. I do not believe the government should determine winners and losers through artificial barriers or regulatory delays.

• I’ve been disturbed by recent reports suggesting that we were stalling the approval process. I can assure the public that this is far from the truth. Our staff has worked tirelessly, late at night and on weekends, and even through recent inclement weather.

• It’s worth mentioning that even with all of the interest in this particular application, we are still considering approval roughly six weeks prior to the end of the 180-day statutory timeframe.