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ISDA PRESS REPORT - WEDNESDAY, NOVEMBER 15, 2000
* Reform of investment rules urged * US Election Has New Commodities Laws In Legislative Limbo * AG Subcommittee Candidate Raises Eyebrows * SFE Cleared To Sell In US Markets Digest * Levitt's Options Penny Postulation Too Pricey? Reform Of Investment Rules Urged Financial Times - November 15, 2000 The European Commission is pressing for a radical overhaul of its investment rules to keep up with the accelerating pace of change in securities markets and to encourage more cross-border trade. Frits Bolkestein, the EU's single market commissioner, will launch a widespread consultation process on Thursday to discuss the changes needed to the EU's investment services rules. The update of the EU's investment services legislation is one of the top 10 priorities set by the Commission for its financial services work in the next six months. EU heads of government want to complete the integration of the financial market by 2005 as part of the drive to improve competitiveness. Financial services accounts for 6 per cent of EU gross domestic product and this is expected to grow rapidly as the euro and new technology lead to a more integrated capital market. Part of the drive to overhaul the investment legislation is the Commission's recognition that its "single passport" rules allowing a firm to sell investment services across the EU as long as it complies with supervisory rules in its home country, do not work well in practice. This is because too many countries impose their own additional, specifically local restrictions in the name of investor protection. The Commission now wants to ensure that home country rule is enforced for all professional investors such as pension funds and other institutions and any local restrictions removed. National supervisors may still impose some restrictions on services provided to retail investors, but these should be kept to a minimum. This involves countries agreeing on a common definition for a professional investor - generally an institution. But sophisticated individual investors can also apply to be treated as professionals if they have enough experience and a large portfolio. Mr. Bolkestein also wants to stimulate discussion among countries about how to achieve more common regulation of markets and trading systems, including new electronic trading arrangements. It is vital for the Commission to address the discrepancies in regulation between different markets. There is a danger that EU rules will not keep up with the growing number of mergers between securities exchanges and the development of electronic marketplaces that are used across borders. The consultation exercise will take place until March next year after which the Commission will legislate. US Election Has New Commodities Laws In Legislative Limbo Dow Jones News Service - November 15, 2000 By Dawn Kopecki Like everything else in Washington these days, the push for new U.S. commodities laws is stuck in legislative limbo with an unresolved presidential election and an undetermined end to the congressional session. Lawmakers were expected to finish outstanding budget work and a handful of policy bills by the end of this week. But they decided Monday to suspend all legislative action for the next three weeks, returning to work in early December. "At some point or another, we have to do our job. But it's very hard to do when the election isn't settled," said Sen. Phil Gramm, R-Texas. The Senate Banking Chairman, who objects to the commodities legislation being considered in the Senate, didn't rule out anything regarding new derivatives laws or bankruptcy rules Tuesday. He spoke with reporters after the Senate GOP's weekly policy lunch. "There's still a lot here to be done," Gramm said, responding to a question about the commodities bill and possible bankruptcy laws. "There are a lot of things that could happen." Senate Agriculture Chairman Richard Lugar, R-Ind., hasn't yet decided whether he will push legislation that merely extends current commodities laws or press Senate leaders to pass the House bill that overhauls the laws that oversee the $94 trillion derivatives industry. "There are so many things up in the air," said Senate Agriculture spokeswoman Tiffany Steele. Lugar has said in the past that he could bring up the commodities bill that passed the House 377-4, over Gramm's objections, and attach it to a federal spending bill before Congress adjourns for the year. "That's one of the options being considered," Steele said. The House bill excludes OTC contracts from U.S. commodities laws, eases regulations for U.S. futures exchanges and lifts the 18-year ban on single-stock futures. The most recent statistics available placed the total estimated worldwide notional value of outstanding over-the-counter derivatives contracts at $94 trillion at the end of June, according to the Bank for International Settlements. Ag Subcommittee Candidate Raises Eyebrows. Wall Street Letter - November 13, 2000 By Dan Freed One of the more interesting possibilities in the forthcoming appointment of new committee leadership positions in the House of Representatives in the wake of last week's elections - which has thus far escaped the notice of many in Washington - involves a subcommittee chairmanship and a crucial piece of legislation. A number of committee leadership positions that are critical to the interests of Wall Street are still considered to be open. Nick Smith, R-Michigan, was one of only four members of the House of Representatives who voted against the Commodity Futures Modernization Act last month. Nevertheless, Smith is in the running to be appointed chairman of the House Agriculture subcommittee for Risk Management, Research, and Specialty Crops, which wrote the legislation. If the bill, which would overhaul commodity trading regulations, doesn't pass Congress this year, Smith could well find himself responsible for writing the next one. A spokesman for Smith did not provide an explanation for the congressman's vote by press time, and he had no comment on whether Smith would pursue the subcommittee chairmanship. One lobbyist could not explain Smith's vote, but suggested that the congressman didn't have a solid understanding of the issues surrounding the legislation. "He's very strange. He attends most of the hearings, but he zeroes in on things that don't matter to many people - delivery points with [Chicago Board of Trade] grain contracts. People in the audience snicker when he asks questions." The lobbyist conceded, however, that "[Smith is] always open to listening to everyone's concerns." The Smith spokesman did not return a call requesting a response to these comments. Another lobbyist was less critical, pointing out that CBOT delivery points are an important issue for Smith's constituents, as well as others in his region. The first lobbyist doubted that Smith would get the chairmanship, and seconded a House staff member's guess that the post would go to Frank Lucas, it-Oklahoma, who represents both energy and agricultural interests, giving him ties to the futures and over-the-counter communities. Other possibilities are John Boehner, it-Ohio, and Terry Everett, R-Alabama. Full Committee chairmanships said to be still undetermined in the House include the two principal financial industry oversight committees, Banking and Commerce. Marge Roukema, R-New Jersey, has seniority in the Banking Committee, but Richard Baker, R-Louisiana, is considered a contender. Michael Oxley, R-Ohio, has also been rumored as a possible Banking chairman, though he announced his candidacy for the Commerce position last week. W.J. "Billy" Tauzin, R-Louisiana, has also staked a claim to Commerce, and his battle with Oxley, which has flared up in public on occasion, will be interesting to watch. Chairmanship of the House Ways and Means committee which is responsible for tax issues, is also in question. Either Philip Crane, R-Illinois, or William Thomas, R-California could get the nod. SFE Cleared To Sell In US Markets Digest Financial Times - November 15, 2000 SFE cleared to sell in US The Sydney Futures Exchange said yesterday it was now permitted to directly offer its stock futures and options contracts to US customers. The exchange said it had obtained authorisation from US regulator, the Commodity Futures Trading Commission, and its Share Price Index 200 products were now available to customers globally. Introduced in May, the SPI 200 futures and options are based on the S&P/ASX 200 index, the new benchmark equity index for Australian markets. SFE's interest rate and commodity products are already available for trading to customers worldwide. Meanwhile, the Australian Derivatives Exchange (ADX) said yesterday it was confident it would be able to open for business within weeks and a firm launch date would be announced as soon as possible. The ADX said it believed it was in the final stages of satisfying the information and documentation requirements of the Australian Securities and Investment Commission, which was in the process of assessing the exchange's market application. Originally scheduled to be launched on October 20, the ADX had postponed its launch date to the middle of November, saying more time was required to complete the regulatory process. ADX is intended to be a fully electronic derivatives exchange with a global focus. Levitt's Options Penny Postulation Too Pricey? Wall Street Letter - November 13, 2000 Securities and Exchange Commission Chairman Arthur Levitt's recent suggestion that the Commission may ban trading and quoting of options contracts in increments larger than a penny has drawn considerable skepticism from a market data expert, who said that trading options in pennies would cause a tremendous strain on industry information systems. Leo McBlain, who chairs the Financial Information Forum, an industry organization devoted to information systems matters, said that were the Commission to mandate that options trade in pennies, it could conceivably cause some firms to choose to abandon the product altogether, if they determined that the cost of bringing systems up to speed outweighed the revenue it generated. During a speech delivered just over a week ago at the Fordham Law School in New York City, Levitt suggested that the Commission might mandate penny increments for options, just as it has for stocks. McBlain explained that one equity stock can generate as many as 60 options contracts, due to different information about prices and expiration dates. He noted that options data already accounts for roughly 70% of all market data generated in North America. Increasing the number of options pricing possibilities by five or 10 times could generate far more message traffic than current systems can handle. Updating those systems could be tremendously costly, he said, though he wasn't aware that any cost estimates have been made thus far. John Panchery, who heads the Securities Industry Association's decimals conversion project, said that industry attention is still focused on ensuring that it will be able to handle the additional message traffic that will be generated when Nasdaq converts to decimals in the spring. He said it was too early to say whether trading options in pennies within a year was an unrealistic goal, or whether such a mandate from the SEC might cause some firms to choose not to trade options. An SEC spokeswoman declined to comment, noting only that Levitt said in his speech that he "did not underestimate the technological and regulatory challenges [options] markets face." End of ISDA Press Report for Wednesday, November 15, 2000. THE ISDA PRESS REPORT IS PREPARED FOR THE LIMITED USE OF ISDA STAFF, ISDA'S BOARD OF DIRECTORS AND SPECIFIED CONSULTANTS TO ISDA. THIS PRESS REPORT IS NOT FOR DISTRIBUTION (EITHER WITHIN OR WITHOUT AN ORGANIZATION), AND ISDA IS NOT RESPONSIBLE FOR ANY USE TO WHICH THESE MATERIALS MAY BE PUT.
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