TRIPLE WITCHING ISSUE OVERHANGS FUTURES MEETING
Leaders of the major U.S.
commodity exchanges and their federal regulators begin a
three-day meeting here tomorrow satisfied with the industry's
growth but uncertain about their futures.
    An estimated 1,200 industry officials are expected to
attend the annual gathering hosted by the Futures Industry
Association, FIA.
    The satisfaction comes from the dramatic expansion of the
U.S. futures and options industries over the last decade.
    The uncertainty surrounding this year's meeting stems
largely from a pervasive sense that the potential for major
market disruption stalks the futures, options and equity
industries.
    This bucolic resort will provide an ironic backdrop as the
financial industry's chiefs anxiously observe this quarter's
triple witching hour, March 20, when price gyrations threaten
to rock markets.
    Triple witching occurs when stock index futures and options
and individual stock options expire simultaneously.
    The quarterly phenomenon has been marked by price
volatility as arbitrageurs have shifted investments between
stocks and their derivative instruments.
    In an effort to quell price fluctuations, the Chicago
Mercantile Exchange, CME, home of the Standard and Poor's 500
stock index futures contract, recently announced plans to move
the contract's settlement to the morning of the quarterly
expiration day from the afternoon.
    The New York Stock Exchange this Friday intends to
implement stricter procedures requiring members to submit all
market-on-close orders in 50 blue-chip stocks by 1530 EST.
    Despite these efforts to ensure smoother contract
expirations, there is a sense more might have to be done to
avert an uncontrollable fall in prices someday.
    Looming over the exchanges are the twin threats of
fortified federal regulation and congressional action to strap
market activity.
    Commodity Futures Trading Commission, CFTC, Chairman Susan
Phillips has said the current regulatory structure is adequate
to cope with intermarket arbitrage, but that she expects new
surveillance procedures and enhanced cooperation with the
Securities and Exchange Commission, SEC.
    SEC Chairman John Shad, voicing concern over price
volatility associated with program trading, has resurrected a
proposal, opposed by CFTC officials, to give federal regulators
control over the setting of futures margins.
    Some contend that because futures margins are low relative
to stock margins, portfolio managers have a tendency to shift
out of stock index futures in a falling stock market, hastening
a downward price spiral.
    Absent from this week's meeting will be a key congressional
player -- Rep. John Dingell (D-Mi.), chairman of the House
Energy and Commerce Committee and head of a subcommittee
responsible for overseeing the SEC.
    Dingell has promised to look into program trading and
explore ways of insuring investors and hedgers against market
disruptions. He is interested in reviewing margins and dual
trading, a practice that allows futures brokers to trade for
their own account before placing customers' orders.
    Recently, a group of CME members, concerned over the
perception of abuse of dual trading, proposed banning the
practice. The CME board responded with a plan that would
restrict, but not ban, the activity.
    The meeting will also be attended by regulators from
Australia, Britain, France, Hong Kong, New Zealand and
Singapore. Their appearance coincides with a controversial CFTC
proposal to adopt new regulations over the trading of foreign
futures and options on U.S. exchanges.
    The U.S. exchanges oppose the proposed regulations on the
grounds they would prove unnecessarily burdensome.
    Other areas of disagreement between the CFTC and the
exchanges include the requirement that the exchanges implement
strict, one-minute audit trails by this summer, proposals to
revise federal limits on speculative positions and the
definition of hedging, and CFTC efforts to determine which new
instruments must be traded on regulated exchanges.
 Reuter
