(FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.)
It’s not happening.
Not that it was ever really going to happen.
The possibility of a merger between the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission has been discussed for about as long as the two market regulators have existed. Which is to say a very long time.
“Jurisdictional conflict exists between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC),” Mark Frederick Hoffman of the University of Michigan Law School wrote in a 1995 research paper. “While a merger of the two agencies may not eliminate all of the inefficiencies of the current system, a single regulator could provide a lower-cost alternative to the present, anachronistic, dual regulatory system which is faced with problems of increasingly complex financial instruments and expanding global competition.”
Fast forward 30 years, and the merger-favoring backdrop seems to still be in place. Indeed, the regulatory system is in fact dual and it can be viewed as anachronistic; financial instruments are more complex; and global competition has expanded.
But at least in the past 15 or so years – or, for as long as your friendly neighborhood Traders Magazine Editor has covered the industry – the discussions have never seemed particularly serious. At industry conferences, “should the SEC and CFTC merge?” was likely to be asked at the very end of a panel, more as an academic exercise to fill airtime than anything else.
The ‘should they merge’ question would garner perhaps 50 percent support, but affirmatives for the ‘will they merge’ question would be closer to zero.
Combining the SEC-CFTC sounds sensible enough, at least in theory. The regulators are located just 2.6 miles from each other in Washington, DC – putting them together would cut overhead and save taxpayers money, while (as the UMich researcher alluded to) reducing duplicative regulation and eliminating confusion in the marketplace about who oversees what.
But what’s good in theory isn’t always good in practice, and any ember of a merger possibility has been extinguished, at least for now. This has been signaled, ironically enough, by the regulators recently declaring their intent to collaborate better, and holding a roundtable event to discuss how regulatory harmonization could help market participants, market operators, and end-user investors.
The notion of a SEC-CFTC merger was discussed at Solidus Labs’ DACOM 2025 in New York earlier this week. Christopher Giancarlo, former CFTC Chairman, noted that a merger was studied in 2017, and estimated annual savings was pegged at just $9 million. Given that piddly number, there was no momentum for a combination to move forward, and the plan now is for market participants to be better off with two separate agencies that work well together and don’t hinder innovation or the efficient workings of capital markets.
Will this joint venture work out as it’s meant to, or will regulators not be able to share the sandbox in a way that will continue to vex market operators and participants? Time will tell.
