Karl Lockhart: Instead of squabbling over a new chair, merge the CFTC with the SEC

Chicago Tribune

8 hours ago

Today, trading stocks and options, wagering on an MLB game and buying cryptocurrency are just a swipe away — sometimes in the same app. The merging of these markets makes a strong case to merge the two federal agencies charged with regulating them, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
And now is the time to do it. The Senate Agriculture Committee, which oversees the CFTC, has been squabbling over President Donald Trump's nominated chair, Brian Quintenz. The remaining CFTC commissioners have indicated they plan to leave by the end of the year. Meanwhile, the SEC will likely have a Republican vacancy in the near future when Commissioner Hester Peirce's term ends.
This setup creates a perfect scenario for Congress to pass legislation to merge these two agencies, something that has been called for — on a bipartisan basis — and considered for over 30 years. Quintenz could become the SEC's third Republican commissioner when Peirce departs, applying his past experience as a CFTC commissioner to smooth the transition.
Beyond the convenience of timing, why merge the SEC and the CFTC? First, the line between the two regulators' jurisdictions has always been blurry. An early debate centered on futures related to securities, and current confusion and jurisdictional squabbling have come up over the regulation of non-stablecoin crypto products. While the GENIUS Act's passage has brought clarity to stablecoins, a merged SEC-CFTC would immediately remove uncertainty over which agency should oversee other crypto innovations.
More importantly, markets have changed. The CFTC began as an agency to regulate futures on agricultural products, but the vast majority of futures and derivatives today are linked to financial products and instruments. Agricultural futures make up only a small sliver of the market.
What's more, the growth in event contracts — options that pay out based on whether a given event does or does not take place — and CFTC's approval of event contracts related to sports have effectively legalized sports gambling across the United States, folding that market into the CFTC's regulatory reach. In short, all markets for financial products — equities, debt, options, commodity and currency futures, crypto and, now, sports wagers — are merging.
Furthermore, the same players are participating in and employing the same tactics across all markets. Institutional investors such as hedge funds are applying big data, algorithms and artificial intelligence not only to stocks and bonds, but also to event contracts and sports betting markets. And, as mentioned above, retail investors — nonprofessional market participants trading for their personal accounts — can open the same app on their phones to trade stocks, options, crypto and sports-related event contracts anytime, anywhere.
A merged SEC-CFTC would cut down on compliance costs for firms that currently must abide by two sets of regulations. And it would allow for better-coordinated enforcement activities against bad actors who scam retail investors across multiple markets. Both agencies also have a similar structure — five commissioners, with at most a bare majority from the president's party to preserve independence — a crucial factor in our partisan era.
To be sure, as with any merger, some operational difficulties would be present as cultures and practices become aligned. But the SEC and the CFTC have fundamentally similar missions and roles. They just regulated what were different markets. Now, to best protect investors, facilitate capital formation and maintain a fair, orderly and efficient (now-unified) market, the SEC and CFTC should join forces.
Markets have merged. So should our regulators.