Doing away with the Commodities and Futures Trading Commission is not exactly a new idea. It was first broached seven years ago. But today the CFTC has a new crop of critics in the halls of Congress who've set their sights on merging it out of existence-either with the SEC or some supra-body of financial regulation. The loss of Mary Shapiro at the CFTC helm, where she earned a reputation as a no-nonsense enforcer and built good political fences, has led to the impression that the institution could be vulnerable. If Clinton's choice to replace her ends up in a tough nomination fight with the Republican majority, the organization might end up further weakened. To discuss the regulatory future and prospects for a merger we've assembled the following five panelists.

Robert Glauber
Lecturer, Center for Business and Government, Kennedy School, Harvard University

I supported the merger proposal drafted by Congressman Baker last year. To the extent the present Banking Committee proposal is similar, I would likely support it as well. As the distinction between futures contracts and securities becomes less clear, the CFTC and SEC are constantly tripping over each other in asserting jurisdiction. Regulation is too fragmented. It needs to be consolidated.

But a simple merger bill leaves a lot of questions unanswered: How will the underlying laws regulating securities and futures be reconciled? Will there be separate regulation for agricultural futures? What Congressional committees will have oversight? And so forth.

The Commodity Futures Act (CFA) and the Securities Acts set very different rules for trading and express very different philosophies of regulation. The CFA requires all trading to be done on exchanges, while the Securities Acts put a premium on investor efficiency of markets and on investor protection. A merger of the regulators without reconciling these differences would be a job only half done.

Congressman Baker's bill sets up a separate authority within the merged regulating entity to handle agricultural futures. This idea makes sense. There are important differences between agricultural futures on the one hand and financial futures on the other. Absent a separate section in the regulator, the agricultural interests are likely to feel left out.

Then there's the issue of Congressional oversight. The agricultural committees oversee the CFTC. In the House, the Commerce Committee handles the SEC; in the Senate, the Banking Committee has oversight. Divvying up the Congressional turf is no small problem. And once oversight is up for grabs, the House Banking Committee will no doubt challenge the Commerce Committee for jurisdiction.

These are all problems which must be solved, but probably the best way to deal with them is to merge the regulators. At the same time there should be a study of the underlying laws as part of the merger. The merger itself will put pressure on Congress to work out the jurisdiction.

Jack Wing
Chairman & CEO, The Chicago Corporation

I don't think a merger between the SEC and CFTC will happen. There are two separate Congressional committees involved, each with a different set of jurisdictions and politics that make for an impossible scenario. Both the securities and futures industries have people who resist the merger notion strenuously. When it comes to regulators, maybe it's better to go with the devil you know than with the devil you don't know. In addition, the futures and securities operate under different statutes, which a unified financial market commission would find difficult to manage on an integrated basis. For example, securities regulators view the obligation to get best execution by finding the other side of a trade very differently than the futures regulators view prearranged trading. Similarly, the obligation to trade with a market maker is viewed very differently by securities regulators than the futures regulators view dual trading. There are many other philosophical differences. These differences would compound the political and practical problems for a single regulator.

John Damgard
President, Futures Industry Association

No, there will not be a merger between SEC and CFTC. The CFTC is stronger than ever and there is no apparent reason for such a major reorganization of the regulation of U.S. financial markets.

Most Congressmen believe that functional regulation makes sense. That is to say, banking should be overseen by banking regulators, securities markets should be monitored by security regulators, while futures markets should be regulated by futures regulators-because they're all specialty areas.

The CFTC and the SEC have completely different orientations. The CFTC oversees U.S. markets that are global in nature, such as energy, precious metals and currencies. The SEC, on the other hand, regulates U.S. securities markets, which by definition are domestic.

The Barings collapse was a tragedy. But it highlighted the strength of the CFTC and U.S. regulation. The world saw the CFTC take a leadership role in what could have been a financial meltdown. It's international emergency situations like this that illustrate the need for a strong agency devoted to futures.

Jim Leach [chairman of the House Banking Committee] is a respected public servant. There is no evidence even in the banking committee that this proposal has the support necessary to move it forward. It's also unrealistic to think there will be any serious action on the proposal this year. If Congress boxes the SEC and CFTC into one agency, the possibility of a less efficient agency emerges, which would be a loss to the financial world.

Roland Lochoff
Senior manager, fixed income investments, PanAgora Asset Management

In the long run I think the merger is a good idea, but that doesn't mean it will happen soon. I think a merger makes sense because technology is moving in such a way that there is far less distinction between the commodities and cash markets.

We in the U.S. compete with other financial centers where regulation is lighter. London tends to be not as bureaucratic, for example. Here the legal departments of financial firms must worry about the different aspects of laws governing each market.

The cash markets are more at risk for abuse. The fixed-income meltdown in Orange County wouldn't have happened if the CFTC were regulating it, because there are explicit margin calls with futures. Some structured fixed income products under the purview of the SEC can easily be misused with little feedback until an unpleasant outcome is already guaranteed. Since futures have to be marked-to-market every day there is constant feedback. Perhaps this concept will be applied by a unified regulatory body. The key is having assets marked-to-market regularly.

Beyond the technical difficulties inherent in merging, the SEC and CFTC have very different cultures deriving from very different backgrounds. To generalize, the SEC has accountants and lawyer types, whereas the CFTC has trading types. Merging should result in some unhappy people.

Stephen Blumenthal
Senior vice president, The Washington Research Group

No, it's not going to happen. It's academic. There isn't time left. Congress adjourns in October and will be in recess until January. It's an election year and the first time in 40 years that the Republicans have controlled the House. The Republicans will adjourn Congress to campaign in their effort to keep control of the House. They have some big fish to fry, such as health care, budget fights, restructuring financial services. Accordingly, a merger between the SEC and CFTC is not high priority. No one gets re-elected, or hears from constituents because of their vote on a merger of regulatory entities. Seats are lost because of a wrong vote on abortion or gun control.

The bill that was introduced by the Banking Committee isn't the same as previous bills to merge the CFTC and the SEC. This one creates a new umbrella agency that's dominated by banking regulators including the Federal Reserve Board and the Office of the Comptroller of the Currency. The CFTC and SEC are underneath the banking regulators in this proposed structure. I haven't seen support for that approach anywhere. It's not the way to go about the merger.

The Brady report in 1988 led to the first serious attempt to merge the SEC and CFTC. Brady believed that the commodities and securities markets were really one market. He felt that split responsibilities among regulators allowed things to fall through the cracks. A bill was introduced by Senator Heinz, who was tragically killed one week before the vote. Senator Kit Bond of Missouri ended up sponsoring the bill, which was defeated by a vote of 66 to 33. I was in the House at the time, where the bill would have been defeated by a bigger margin because there was little support for it, except at the SEC. The SEC has always thought it would be a good idea to acquire the CFTC.

There are philosophical differences between the agencies. The SEC views the security industry as an adversary, while the CFTC, traditionally, has been a regulator that is market oriented. People are concerned about bringing the SEC's adversarial relationship to the commodity markets. The SEC functions under the German definition of freedom, i.e. if it's not authorized it's prohibited. The CFTC is more libertarian and inclined to approve new futures contracts whose value is uncertain. Their philosophy is that if it has no value, it will fail in the marketplace. The SEC does not share that orientation. If SEC-style regulation were imposed on commodity markets, it could be disruptive. They have a different way of looking at things.

Another factor that will frustrate a merger is that the House Banking Committee chairman, Jim Leach, has not been able to get either the Glass-Steagall reform or the bank insurance fund recapitalization legislation out of committee. He is also having difficulty moving his traditional banking legislation agenda forward, so I find it hard to believe the merger bill can be high priority.