The system for clearing and settling trades in U.S. government securities could be getting a long-awaited overhaul.
After years of discussions, the Government Securities Clearing Corp. is making progress in talks with Chicago’s futures exchanges on new cross-margining and settlement arrangements, officials say.
And, ironically, one of the Chicago exchanges’ most feared new rivals–the Cantor Financial Futures Exchange–is providing momentum for the talks.
The changes under consideration are aimed at improving risk- and capital-management practices in the market for U.S. Treasuries.
New York-based Government Securities Clearing has drafted an agreement that would enable users of the futures and cash markets to reduce their requirements for margin–the collateral they post to guarantee trades–said Jeffrey Ingber, the organization’s general counsel. New rules affecting the settlement of Treasury contracts also are on the drawing board, he said.
By reducing capital costs and increasing back-office efficiencies, new clearing and settlement procedures could give a boost to the Chicago Board of Trade’s Treasury futures and its Chicago Board Brokerage cash-market unit. The Chicago Mercantile Exchange’s Eurodollar futures could benefit, too.
The talks picked up steam last fall when representatives of the proposed Cantor exchange began discussing their plans with Government Securities Clearing officials. Cantor Fitzgerald wants to launch a computerized-trading system for Treasury futures in partnership with the New York Cotton Exchange.
“We’ve progressed a lot recently,” said Ingber. While a draft agreement might be ready in a matter of weeks, he said, it would be subject to regulatory review and other hurdles.
Ban lamented: For years, Z. Lou Guttman personified the New York futures markets.
As chairman of the New York Mercantile Exchange from 1988 to 1993, the brash Hungarian immigrant pushed ahead plans for a new trading facility and an after-hours computer network.
Now Guttman has another claim to fame: In the view of some traders, he has become an example of regulatory bias against industry big shots.
The Commodity Futures Trading Commission has levied the sort of administrative penalty against Guttman that it usually reserves for the industry’s worst cheats: a permanant ban.
Guttman is accused of looking the other way while a partner made a series of illicit options trades that covered up a big capital shortfall in their joint account. No customer funds were involved.
The case, brought in 1993, attracted some notoriety when a CFTC judge suggested that Guttman should be held to a higher standard because of his status as an industry leader: “Guttman’s gross violations . . . especially in light of the fact that he was chairman of the Nymex, directly taint the integrity of the futures market and warrant serious sanctions.”
The judge imposed a $500,000 fine and five-year trading ban. Guttman appealed to the full commission, saying the penalty was unduly harsh. The Chicago Merc and Board of Trade contributed a legal brief supporting his appeal.
But the commission didn’t buy it. Ruling on April 27 that Guttman’s actions “seriously damage the integrity of the futures markets,” the commission let stand the fine and made the ban permanent. Guttman, who declined to comment, is said to be considering a further appeal.
Not winging it: LaSalle Street veteran Jack Wing plans to stay involved with futures and options, even as he steps down from the chairmanship of ABN AMRO Inc. for a new post at the Illinois Institute of Technology.
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Wing will remain chairman at the Dutch-owned bank’s ABN AMRO Sage Clearing unit, and he expects more growth ahead. “The firm is very committed to expanding in the futures business,” he said. “It’s gotten to be reasonably profitable for us.”
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