CHICAGO -- SEC Chairman Arthur Levitt Jr. argued the case for a new form of regulation over derivatives dealers at the Chicago Board Options Exchange's 25th anniversary investment symposium.
And U.S. Secretary of Treasury Robert E. Rubin lobbied for support from business leaders in the Treasury's efforts to provide new capital to the International Monetary Fund.
Other participants in the April 24 symposium included Philip Purcell, chairman and chief executive of Morgan Stanley Dean Witter & Co.; and Nobel laureate Myron S. Scholes, principal and limited partner of money manager Long-Term Capital Management LP and a professor at Stanford University.
Mr. Levitt's talk centered on an April 16 Securities and Exchange Commission proposal that would allow over-the-counter broker dealers to participate in a "lite" form of regulation, with a goal of maintaining the United States' pre-eminence in world markets.
Regulation under the proposal would provide a new category of broker/dealer for those that are counterparties to derivative transactions, and would be strictly voluntary, he said.
He said the proposal is not an attempt by the SEC to "reach beyond its jurisdiction. Clearly, this is not the case, this is not our intent. Our proposal merely seeks to give large securities firms the ability to voluntarily put their OTC derivatives in one U.S.-registered entity."
The new regulation would carry capital and margin requirements tailored to derivatives dealers, he said.
He also discussed how the SEC proposed a change to allow exchanges to introduce new products without first receiving SEC approval, which would allow for experimental use of new trading systems.
"That's a revolution, not evolution," Mr. Levitt said.
Mr. Rubin, an early user of options, gave the keynote luncheon talk in which he described what he considers to be the four biggest challenges facing the United States:
* Keeping the country's fiscal house in order;
* The globalization and interdependence of investment markets;
* Improving the education system in the United States; and
* Bringing people outside of the economic mainstream back into it.
As part of a response to those challenges, Mr. Rubin said he favors broader disclosure, free and open markets worldwide, and support by the United States of the International Monetary Fund.
The day before his speech, the U.S. House of Representatives had dropped IMF funding from a spending bill.
Mr. Rubin said that while the chance the Asian crisis will spread to the United States is low, situations such as that create a real need for the IMF.
Jack Wigglesworth, chairman of the London International Financial Futures and Options Exchange, asked Mr. Rubin if privatization of Social Security would be a positive step.
"No," Mr. Rubin responded.
"Social Security has been a remarkable thing in this country. Whatever we do with Social Security, there should be a guarantee" of some type provided for retirement income, he said.
In a separate speech, Mr. Purcell jokingly thanked Mr. Scholes for the Black-Scholes options pricing model, because it allows the press to annually publish the value of his total compensation at Morgan Stanley.
On a serious note, though, he said the biggest challenge facing the CBOE is to make sure it has the liquidity to handle the continuing expansion of derivatives markets.
William Johnston, president and chief operating officer of the New York Stock Exchange, another symposium participant, said in response to a question that one of his biggest fears going forward is that open-outcry exchanges like the CBOE and the NYSE will not be able to compete in the future with electronic-based exchanges.
CBOE Chairman and Chief Executive William J. Brodsky responded to a question about the exchange's future use of electronic trading by acknowledging the CBOE needs to keep up with technology, but underscored his support for open outcry.
Other symposium participants were: Kenneth R. Liebler, a former options industry participant who now is president and chief executive of investment firm Liberty Financial Cos. Inc.; and James Hackley, executive vice president of Charles Schwab & Co. Inc.