Former SEC Chair Levitt Calls for Merging the SEC and CFTC

In a piece in today’s Wall Street Journal, former SEC Chair Arthur Levitt called for the merger of the SEC and CFTC into the Securities Futures Commission with enhanced authority over hedge funds, OTC products and rating agencies. The SFC would also oversee OTC and exchange markets, securities and commodities professionals, mutual funds, corporate reporting, and clearance and settlement systems. Mr. Levitt also believes that boutique investment banks will arise to fill the current void; and should be regulated along global business lines.

In its blueprint for regulatory reform issued earlier this year, the Treasury recommended the merger of the SEC and CFTC in order to provide unified oversight and regulation of the futures and securities industries. According to the blueprint, jegislation merging the CFTC and the SEC should not only call for a structural merger, but also a process to merge regulatory philosophies and harmonize securities and futures regulations and statutes.

In Treasury’s view, a condition precedent to merging the SEC and CFTC would be the harmonization of differences between futures regulation and federal securities regulation, including rules involving margin, segregation, insider trading, insurance coverage for broker-dealer insolvency, customer suitability, short sales, SRO mergers, implied private rights of action, the SRO rulemaking approval process, and the agency’s funding mechanism. Due to the complexities and nuances of the differences in futures and securities regulation, legislation should establish a joint CFTC-SEC staff task force with equal agency representation with the mandate to harmonize these differences. In addition, the task force should be charged with recommending the structure of the merged agency, including its offices and divisions.