The SEC and CFTC recently issued two joint orders related to securities-based futures contracts which went into effect on November 17 and November 19, 2009, respectively. As the recent SEC press release explains, “[t]he first joint order excludes certain foreign and domestic volatility indexes that are based on broad-based security indexes from the definition of "narrow-based security index". As a result of the joint order, futures on foreign and domestic volatility indexes that meet the criteria contained in the joint order are treated as "broad-based security indexes" and subject to the exclusive jurisdiction of the CFTC. Options on such volatility indexes are subject to the federal securities laws and the jurisdiction of the SEC…The second joint order allows security futures products to be based on any security that is eligible to underlie an exchange-listed security option, including certain unregistered debt securities.”
The joint orders are consistent with the Joint Report of the SEC and CFTC on Harmonization of Regulation issued on October 16, 2009, which assessed problems with the current regulatory schemes of the two agencies. Specifically, the Joint Report identified significant differences between securities markets and futures markets, and recommended legislative and regulatory actions to address the inconsistencies.
A complete copy of the joint order that went into effect on November 17, 2009 can be found here. A copy of the November 19, 2009 joint order can be found here.