House Bill Aims to Merge the SEC and CFTC

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New “Securities and Derivatives Commission” proposed by Barney Frank.

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A bill proposed by Rep. Barney Frank (D-Mass.) would merge the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), into a single regulatory body known as the Securities and Derivatives Commission.  Frank suggested “the existence of a separate SEC and CFTC is the single largest structural defect in our regulatory system” and a merger of the two would improve efforts to coordinate financial regulation while strengthening investor confidence.

The new commission would have jurisdiction over “securities, derivatives, options, futures, and related markets and instruments” and be split into three divisions: the Markets and Trading division, the Issuers and Financial Disclosures division, and the Enforcement division. Five commissioners with demonstrated knowledge in these areas would lead the commission.  No more than three commissioners would be from the same political party.

Frank, who was instrumental in the Dodd-Frank Act, suggested that he did not include such a merger provision in the Act in 2008 because doing so “would almost certainly have caused the defeat of that legislation.”

Now in 2012, legislators on both sides of the aisle are predicted to continue opposing such a merger. Some believe that those supporting the bill will “face an uphill battle to overcome resistance to the idea in the Senate and [in] agriculture committees.”  The proposal is likely to be met with much resistance due to disagreements between financial regulators, who operate the SEC, and agricultural regulators, who have historically been responsible for operating the CFTC. Sen. Pat Roberts (R-Kan.) and Rep. Collin Peterson (D-Minn.) have already voiced opposition to the merger.

The bill, entitled the “Markets and Trading Reorganization Act,” is co-sponsored by Rep. Mike Capuano (D-Mass.). Capuano believes the merger would “eliminate gaps that have put our financial system at risk.”

This is not the first time officials have called for a merger of the SEC and CFTC.  Former Treasury Secretary, Hank Paulson, recommended a similar merger in 2008.