CHICAGO - Regulators and regulated alike called for less intrusive regulation of derivatives and securities at a recent conference at the Federal Reserve Bank of Chicago.
Susan M. Phillips, a member of the board of governors of the Federal Reserve System, Washington, said bank regulators are putting greater emphasis on evaluating risk management controls.
"For supervisors, as well as bankers, the importance of internal controls cannot be overstated," she said.
Ms. Phillips also pointed out that despite some of the notorious bank losses through derivatives, they are still greatly overshadowed by loan losses.
"Indeed, an argument can be made that credit risks of lending are currently much more difficult to manage and supervise than the market risks that are the predominant risks in trading activities," she said. Forcing banks to move trading operations into separately run entities does not make sense, she said.
Separately, Michael Moskow, president of the Chicago Fed, described a movement to allow banks to use a "precommitment approach," which allows banks to set their own maximum trading losses and capital reserves.
Among its advantages is it encourages banks to improve risk assessment and risk management technology, he said. The New York Clearing House Association is organizing a pilot study of precommitment.
Said Jack Sandner, chairman of the Chicago Mercantile Exchange: "We're virtually in crisis" with the current regulatory model. He said non-U.S. exchanges will continue to gain market share at the expense of U.S. exchanges, as long as U.S. regulators slow innovation and the creation of new products.
The Chicago Fed, the CME and KPMG Peat Marwick L.L.P., New York, sponsored the event.
IPC futures trading expected soon
MEXICO CITY - Executives for the Bolsa Mexicana de Valores, Mexico City, expect to begin trading futures contracts on the Indice de Precios y Cotizaciones, a Mexican stock market index, as soon as September, said Manuel Robleda, chairman and chief executive of the BMV.
The necessary systems and market participants are in place, but some regulatory details need to be worked out, Mr. Robleda said. After the IPC futures will come futures on interest rates and currencies, he said. Then a second phase will bring options to accompany existing futures contracts, he said.
Trading will be done with the assistance of the Chicago Mercantile Exchange and the Chicago Board Options Exchange, which recently began trading U.S. dollar-denominated futures, futures options and options on the IPC index.
Task force issues guidelines
LONDON - A Futures Industry Association task force formed following the near-collapse of Barings released a set of guidelines for exchanges and clearinghouses to use in evaluating and comparing safeguards and rules.
The guidelines, along with a crisis procedures list also created by the task force, offer exchanges and clearinghouses a means to jointly deal with financial crises, such as defaults. The FIA task force will be dissolved.
In addition, six more organizations agreed to sign an information-sharing agreement - also geared toward increasing information flow among exchanges - including the Tokyo International Financial Futures Exchange and the Bolsa de Mercadorias & Futuros. Previously, 49 exchanges and clearinghouses signed the agreement.
Harvey heads up LIFFE unit
LONDON - The London International Financial Futures and Options Exchange appointed Gerard Harvey to the newly created position of director of its market investigations department.
Among his duties will be the enforcement of exchange rules and procedures and trade monitoring. Market investigations is a LIFFE department formed last year; its goal is to ensure the exchange is competitive and well-regulated. Previously, he was head of compliance for NatWest Markets, as well as a director of NatWest Securities.
