A Systematic Change
Good regulators, like good investors, must be able to identify folly. Ideally, both identify folly before the foolishness disrupts the market’s equilibrium. The structure of the current regulatory regime makes that more difficult than is needed for regulators who are typically overworked, outgunned, and ill-equipped for the important task of effectively dealing with banks and exchanges, and monitoring the market. Part of the problem is how regulatory agencies are organized. The SEC regulates stocks and options markets. The Commodity Futures Trading Commission (CFTC) regulates the futures market. This harms investors by diluting the regulators’ reach and power, and ultimately benefits politicians and banks.
All of Wall Street, and much of Washington, knows that futures trading influences, and often determines, the price of stocks. Yet, the SEC has a limited view of what takes place in the stock and options markets because Congress has divided regulatory functions along product lines—rather than the actual structure of the modern market. Merging SEC and CFTC—and harmonizing the rules that each agency uses to regulate the market—is an important first step toward modernizing securities regulations passed more than some 80 years ago when few people invested in stocks, corporations still provided for employee retirement programs with generous pension funds, mutual funds barely existed, and most people saved money in passbook savings accounts at their local bank.