CFTC Chairman Gary Gensler kicked off the new year by outlining his goals for regulatory reform in a speech before the Council on Foreign Relations today. In it, Gensler blamed over the counter (OTC) derivatives for much of the financial crisis of 2008. “I believe that over the counter derivatives were at the heart of the crisis. We have all witnessed firsthand the effects that unregulated derivatives had across the entire economy,” he said. Continue reading ‘Demonizing derivatives’ »

CME Group CEO Craig Donohue had a very relevant quote during today’s meetings on harmonization between the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC). Alluding to the differences between the securities and futures markets, Donohue said it was like “Greeks speaking Chinese to people who speak Portuguese.” Sorting out the regulatory overlaps between the CFTC and SEC and achieving the harmonization called for by President Obama’s regulatory blueprint is a complicated matter indeed. The two agencies must complete a report on harmonization by Sept. 30. Otherwise, the matter will be forwarded to the Financial Services Oversight Council. CFTC Commissioner Bart Chilton said he was optimistic that the two agencies could “solve their issues without ’Mom and Dad’ in the form of the Treasury Department stepping in.”   Continue reading ‘CFTC-SEC: Hiccups to harmony?’ »

Industry leaders wasted no time commenting on the Obama Administration’s new regulatory reform proposal, “Financial Regulatory Reform: A New Foundation,” released yesterday.

The proposal received mostly a chorus of praise from the industry. CME Group called it “a significant step towards restoring confidence in the integrity of financial markets.” International Swaps and Derivatives Association CEO Robert Pickel said in a statement that it “provide[s] an important framework for financial regulatory reform.” In his statement, Futures Industry AssociationPresident John Damgard “commend[ed] the administration for the thoughtfulness and comprehensiveness of its plan.” In a statement, Chicago Board Options Exchange ChairmanBill Brodsky said, “We are particularly pleased that the plan recognizes the need for greater coordination and harmonization of the SEC and CFTC,  including streamlining the approval of new products and rule filings.” But not everyone is singing the proposal’s praises. Continue reading ‘Proposal packs punch’ »

The U.S. Treasury’s 2010 revenue proposal, released Monday, included a bombshell for the futures and options industry: the possibility of the end of preferential 60/40 tax treatment for futures and options. Under the 60/40 rule, enacted 25 years ago, for U.S. futures contracts 60% of gains are considered long-term gains, taxed up to 15%, and the remaining 40% of gains are considered short-term gains, taxed up to 35%. The Treasury’s proposal would eliminate 60/40 treatment. Continue reading ‘Tax bombshell’ »

Regulatory issues are all the rage today in Weston, Florida, at the 27th Annual Options Industry Conference. At a press breakfast this morning, Chicago Board Options Exchange Chairman Bill Brodsky discussed the changing of the guard at the Securities and Exchange Commission and Commodity Futures Trading Commission. He called new SEC chair Mary Schapiro “as well qualified as anyone in recent history” and said the SEC “has a really good cadre of commissioners.” Meanwhile, confirmation for President Obama’s nomination to head the CFTC, Gary Gensler, is being held up by various political stalemates in the Senate. Brodsky said he “doesn’t know whether [Gensler] will make it” but hopes to see him get the job.

Continue reading ‘Options bigs talk shorts’ »

At its annual press luncheon today, Chicago Board Options Exchange Chairman Bill Brodsky, Executive Vice Chairman Ed Tilly and Vice Chairman Brad Griffith reviewed the exchange’s triumphs in what has proven a very challenging year for all firms in the financial services industry, and the status of the ongoing scrum over exercise right privileges (ERP).

In regards to the longstanding ERP issue, in which former members of the Chicago Board of Trade have asserted their claim to an equity stake, Brodsky provided this: “There is light at the end of the tunnel,” adding that he had never said that before relating to the issue. The $300 million settlement with former CBOT members is currently before a chancellor in Delaware. Objections were heard on Dec. 16, mostly relating to eligibility issues related to the class action suit and not related to the fairness of the settlement. A ruling is expected in two to four weeks. Should the chancellor approve the deal, former CBOT members would have 30 days to file an appeal. While there is no telling how long an appeal could take, it likely would be less than a year. “An appeal would be the last hurdle,” Brodsky says, adding that the exchange has “no debt” and could pay the settlement with a check.

Continue reading ‘CBOE ERP update’ »

Russian military operations in Georgia are winding down, but tensions between former CBOT members and the Chicago Board Option Exchange (CBOE) over exchange right privileges (ERP) remain unresolved.

This morning in a CBOE members’ circular, CBOE’s office of the chairman issued a statement that while progress has been made, the agreement, which was to give former CBOT member an 18% equity stake in the options exchange and a cash payment of $300 million to end all claims, had not been finalized.

Word is that the agreement is still being held up by infighting amongst CBOT members over the number of people who will qualify for the settlement. The fewer who qualify, the larger the individual payouts would be. The CBOE has the right to walk away from any agreement that does not extinguish equity claims by all former CBOT members.

More to come….

Early Monday morning we got word that the Executive Committee of the Chicago Board Options Exchange (CBOE) had suspended all purchase and sale transactions in CBOE memberships. The announcement could mean only one thing, that the long dispute over CBOE exercise right privileges (ERPs), currently being fought in a Delaware Chancery Court, could be near a settlement.

An attorney familiar with the industry told us this morning that when there is a halt on seat transactions it usually precedes an announcement that could affect the value of seats. “They don’t want anyone to have an advantage or disadvantage. History says there will be an announcement [that will involve the value of memberships],” said the attorney.

Continue reading ‘Has CBOE/CBOT buried hatchet?’ »

Maybe because the Federal Reserve Bank took the day off from lowering interest rates an pumping liquidity into the market, Secretary Hank Paulson’s regulatory blueprint has gotten a ton of media attention today despite Paulson’s comments that a regulatory transformation wouldn’t begin until after the current market crisis are resolved. “Our first and most urgent priority is working through this capital market turmoil and housing downturn, and that will be our priority until this situation is resolved,” Paulson said. “With few exceptions, the recommendations in this Blueprint should not and will not be implemented until after the present market difficulties are past.”

Continue reading ‘CBOE’s Bill Brodsky reponds to the regulatory blueprint’ »

Timing is everything, and today the Chicago Board Options Exchange (CBOE) found itself with a room full of journalists the day before what could prove to be a fateful moment in the future of the exchange. On Wednesday morning, the Securities and Exchange Commission (SEC) is expected to act on CBOE’s proposed rule change that would eliminate former Chicago Board of Trade (CBOT) member’s CBOE exercise rights, an issue that has been hotly contested for years and could be worth millions to everyone involved.

In December 2006 the CBOE board announced the rule filing, stating, “upon completion of CME Holdings’ acquisition of CBOT, CBOT members no longer would qualify to become or remain members of the CBOE through the exercise right.”

William Brodsky, chairman and CEO of the CBOE, said that the decision could be “the second to last stop,” on the road to demutualization of the exchange. Final decisions and details will be the responsibility of the Delaware court, where CBOT members have filed suit against the CBOE on the equity issue. The Delaware court has postponed the case until the SEC announced its decision on the rules change.

Continue reading ‘CBOE: You’re getting warmer…’ »