Regulatory Conflict and Entry Regulation of New Futures Contracts

Fischel, Daniel R.

doi:10.1086/296340

Cited by 12 publications

(2 citation statements)

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“…The limited collaboration between the CFTC and the SEC, as explained previously, probably has resulted from their cultural differences rather than statutory differences, as is typically indicated (Fischel 1986;Gastineau 1989;Markham 2009). For example, the agencies' continued conflicts and difficulties in resolving differences over portfolio margining, despite market participants' demand for consistent rules, evidence the clash of the cultural differences in prioritized missions.…”

Section: Implication Of Cultural Differences For Interagency Collabormentioning

confidence: 90%

Cultural Differences between U.S. Federal Financial Regulators and Implications for Interagency Collaboration

2013

International Review of Public Administration

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Section: Implication Of Cultural Differences For Interagency Collabormentioning

confidence: 90%

Cultural Differences between U.S. Federal Financial Regulators and Implications for Interagency Collaboration

2013

International Review of Public Administration

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“…This debate is part of a more general polemic in which lawyers and economists have made arguments for and against the self-regulation of securities exchanges. For example, Fischel and Grossman (1984), Fischel (1986), Kyle (1988), Miller (1991), and Mahoney (1997) all argue that exchanges have the proper economic incentives to adopt rules and regulations meant to benefit their customers (i.e., investors). These incentives revolve around the reputation effects of low-quality transaction services and disorderly markets, and the competition (for transaction volume) from other exchanges.…”

Section: Introductionmentioning

confidence: 99%

The Role of Trading Halts in Monitoring a Specialist Market

Edelen

Gervais

2001

SSRN Journal

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Entry‐deterring contract specification on futures markets

Lien¹

1990

Journal of Futures Markets

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n a recent article, Lien (1989(b)) shows that within a mean-variance framework the I optimal futures contract for a commodity with various grades is a conventional cash settlement contract that dictates the futures price as a linear combination of various cash prices (at maturity) such that the weights are independent of both the variance-covariance matrix of cash prices and the risk aversion coefficients of hedgers. The criteria for optimality are based upon the assumption that the exchange attempts to maximize either the hedgers' expected utility levels or the total futures transaction volume in the absence of competitive pressure.The two objective functions seem reasonable. In particular, transaction volume maximization is well accepted in the literature because brokers' revenues, market liquidity, and the seat price for floor traders all respond positively to increasing transaction volume (see Silber (1981) and Grossman (1986)). The assumed absence of competitive pressure may, however, be an unrealistic assumption. Based upon empirical evidence, Fischel (1986) argues that the current Commodity Futures Trading Commission (CFTC) regulations appear to favor new contracts that are very similar to existing contracts instead of those that are more innovative.Moreover, it is argued that the existence of contracts for various grades of the underlying commodity improves cross-hedging effectiveness and, in turn, helps gain CFTC approval. Examples of competing futures contracts are: the Treasury note futures contract traded at the New York Cotton Exchange (NYCE) and those traded at the Chicago Board of Trade (CBOT). Despite differences between the two contracts (they differ in deliverable notes and in the conversion formula used to evaluate the cheapest deliverable notes) trading statistics suggest that these contracts compete directly (Angrist (1988)).Since there is always a possibility of competing futures contracts, an innovative exchange tries to prevent entry of rival exchanges and thus maintain a monopoly. This article investigates the impact of entry deterrence objectives upon the choice of contract settlement specifications of a new futures contract.The approach adopted here is a normative analysis. That is, this article asks the question how the exchange "ought to" behave in certain circumstances upon imposing *This research was, in part, supported by The Center for the Study of Futures Markets at Columbia University. I wish to acknowledge Lee Benham, Paul Messinger, Mark Powers, James Quirk, and two anonymous referees for helpful comments. Anne Sholtz provided editorial assistance. Of course, I am solely responsible for any remaining errors.

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Regulatory Conflict and Entry Regulation of New Futures Contracts

Cited by 12 publications

References 12 publications

Cultural Differences between U.S. Federal Financial Regulators and Implications for Interagency Collaboration

Cultural Differences between U.S. Federal Financial Regulators and Implications for Interagency Collaboration

The Role of Trading Halts in Monitoring a Specialist Market

Entry‐deterring contract specification on futures markets

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