SEC Commissioner Advocates Merger With CFTC; Move Could Help Steady Heating Oil Prices

SEC commissioner Luis Aguilar, who recently supported a merging on the SEC and CFTC. (image: dailylife.com)

Ever since the financial crisis placed the world in economic turmoil, pundits have discussed the possibility of major regulatory overhaul. One possibility that has been mentioned would be to combine the nation’s two biggest financial regulatory agencies into one unit.

Currently, the Commodities Futures Trading Commission (CFTC) oversees American commodities trading, including crude and heating oil; the Securities and Exchange Commission (SEC) regulates the trading of stocks and other securities. However, since Barack Obama was elected president, there have been murmurs that the two agencies could be merged.
Those murmurs grew louder on Wednesday, when SEC Commissioner Luis Aguilar said that he would like to see the CFTC and SEC combined, the Wall Street Journal reported.  Said Aguilar: “By combining these entities, you create a financial regulatory structure that truly has oversight over the entire capital market. The market for securities and the market for derivatives … tend to blend into one market.”

As an SEC commissioner, Aguilar’s comments carry great weight. But his remarks could also have impeccable timing. According to the Journal, word has spread around Capitol Hill of an Obama administration memo that discusses the possible merger.  Combining these two agencies is not a new idea. However, the idea has never gained ground due to its potential political pitfalls. The SEC reports to Congress’ banking committees while Congressional agricultural committees have oversight of the CFTC. Neither committee would like to give up what it currently controls.

Another stumbling block is the cultural differences between the SEC and the CFTC. As the Journal explains: “Part of the resistance to a merger has to do with the fact that the SEC and CFTC have different missions and regulatory philosophies. The SEC aims to protect investors and applies a rules-based regulatory approach, while the CFTC promotes competitive markets, protects market users and applies a more flexible principles-based approach to regulation.”

While the details of a possible merger have not been released, some legislators have already called for changes in the CFTC. Vermont Senator Bernie Sanders recently wrote a letter to the CFTC asking the agency to take measures to prevent rampant oil speculation.  Sanders and others have blamed oil speculators for the dramatic run-up of last year’s oil prices. Speculators have also been criticized for their role in the recent climb in oil prices.

Any change to the structure of the CFTC could have a major impact on heating oil prices. One possible result is an agency that follows Sanders’ request to crack down on speculation, thereby reducing volatility. But another possibility is a regulatory system that ends up confusing the marketplace.