Comments of CFTC Acting Chairman John E. Tull, Jr.

before the

Futures Industry Association (FIA) Conference

Boca Raton, Florida

March 15, 1996

As the Acting Chairman of the CFTC, I appreciate this first opportunity today to say a few words to this group in my new capacity. My remarks will be brief and just touch on a few key points, and I must make the usual disclaimer that the views expressed herein are mine and not necessarily those of the entire Commission or its staff.

The main point I want to make here today is that the CFTC is open for business. We were sorry to lose our former chairman and we are awaiting an announcement and confirmation of a permanent chair, but the work of the Commission is going forward. I believe I can speak for both Commissioner Joe Dial and Commissioner Barbara Holum when I say that we're not going to shut the front door, lock it up and throw away the key. We are working very hard to fulfill the many responsibilities Congress has given the CFTC to regulate the futures industry, and we are going to continue to do so with fairness, integrity, and strength.

In particular, the three of us are very committed to continuing the effort begun by our former chairman to further strengthen our Division of Enforcement. Under the able leadership of the Division's new Director, Geoff Aronow, the Division of Enforcement is being beefed up in terms of staff, resources, and training so that we can have the strong and credible enforcement program that we must have to fulfill the Commission's regulatory mandate.


One recent example of our continued work has been our heightened surveillance during recent volatile markets. Just two weeks ago, the Commissioners held a special surveillance briefing on the increased volatility and discussed our market disruption contingency plan. We were thus well prepared for last Friday, when we stepped up our market surveillance and contacted our exchanges and our fellow regulators. In fact, in light of increased volatility, we had already written to the exchanges to urge them to consider raising margin levels. We also conducted an industry-wide "stress test" as a "practice" run to learn first-hand how the system would handle a crisis.

Late Friday, the Commission held a detailed surveillance briefing to go over the day's activities, and the Commission and its staff was on top of the reaction from the Far East and European markets on Sunday and early Monday. We also began a routine review of last Friday's trading to ensure that there was no manipulation or fraud during that busy and volatile trading day, and we continue to maintain heightened surveillance throughout this week.


As a former floor trader, this Commissioner knows how important it is for American market participants to maintain their competitiveness in the global marketplace. However, complete deregulation is not what is needed since we currently have the safest, most liquid and most transparent markets in the world. We should make every effort to help our industry maintain its competitiveness within the parameters of our laws and regulations. The CFTC is committed to this, and we look forward to working with you to ensure that it happens.

The Commission will continue to listen to your needs by means such as public roundtables, which have been a good way for us to get valuable input from the industry. Some of the things under consideration at this time are speculative position limits, risk assessment, capital requirements, paperless transactions, risk disclosure, notional amounts, internals controls, and informing end-users better about how to use our markets.

The CFTC will continue to take appropriate action where warranted to reduce regulation without endangering the integrity of our markets. This week, for example, the Commission removed the requirement under our Rule 30.3 that we specifically authorize foreign exchange-traded options on a case-by-case basis for offer and sale in this country.


In the international arena, the CFTC is pleased to announce two important events earlier this morning: 14 foreign regulators signed a Declaration on Cooperation and Supervision of International Futures Exchanges, and 49 futures exchanges and clearing organizations from 18 countries signed a companion Memorandum of Understanding.

Both agreements, which are historic in scope, put the shared goals embodied in the Windsor Declaration into practical effect. The Declaration and MOU represent an unprecedented commitment to information-sharing and cooperation among world futures exchanges, clearing organization, and regulatory authorities that will significantly enhance the international safety net for financial markets in this post-Barings era. Under these two agreements, information sharing will be triggered by events affecting an exchange members' financial resources and positions. As we learned during the Barings crisis last year and, as we have been reminded of during the past week's market volatility, there is a great need for such information sharing in times of uncertainty.


Some of you may know that the CFTC held a roundtable in December to discuss the ban on Ag Trade Options. While a majority of participants present at the roundtable expressed a desire to remove the ban, this Commissioner did not hear the participants ask for a wholesale lifting of the ban. Several of the participants urged the Commission to proceed with caution. In moving forward, I agree that caution should be used, and we should keep in mind the abuse and fraud of the past as well as several recent press reports of grain elevator bankruptcies.


As many of you know, the CFTC has been in litigation for quite some time over statutory language known as the "Treasury Amendment". The many lawyers on my staff tell me that there is room for debate over what is the correct interpretation of the Treasury Amendment. Our chief concern all along has been that we retain our ability to police "boiler room" fraud in the sale of off-exchange foreign currency transactions to the general public. The Treasury has in the past taken the view that our jurisdiction even in this area might not be clear. We fully appreciate Treasury's concerns and have no interest in regulating the interbank currency market. Even as I speak, our staff has been working with staff at Treasury, and we are eager to solve this through interagency cooperation.

As my staff knows, my door is always open to them, and that door is always open to you, too. The previous chairman did us quite a service by increasing the dialogue between the industry and our agency, and we certainly hope to continue that practice.

Lastly, while I am truly enjoying my tenure as Acting Chairman, the agency and its commissioners look forward to the nomination and confirmation of a new chairman.

Thank you.