The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) this week published a joint proposal on permitting the trading of futures on debt indexes.
The proposal advances the goal of the President's Working Group on Financial Markets to create a new class of tradable derivatives contracts.
"The new products that undoubtedly will be created under this proposal can provide additional ways to diversify and manage risk," explained SEC Chairman Christopher Cox. "That's good both for capital formation and for the protection of investors."
CFTC Chairman Reuben Jeffery added that:
"I am very pleased today to announce the results of our cooperative efforts with the SEC on this long-awaited proposal to permit the trading of futures on domestic and foreign debt security indexes. The new definition for broad-based debt indexes will benefit both markets and market participants by making available a wider array of financial products for trading."
Futures contracts on debt indices that would be allowed under the proposed rules would trade on futures exchanges subject to regulation by the CFTC. Security futures on debt securities could be traded on futures exchanges and securities exchanges subject to regulation by the CFTC and SEC.
The joint rulemaking is necessary because, under current regulations, trading futures on debt indices is essentially forbidden. The federal law that governs the subject, however, specifically gives joint rulemaking authority to the two agencies to permit the trading of futures on indexes composed of debt securities.
Comments on the proposed rules should be received by the respective Commissions within 30 days of their publication in the Federal Register. The two Commissions expect to adopt final rules by June 30, 2006.
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