Paulson Wants Rivals SEC and CFTC to Merge

Most of the time, rules and regulations are only put in place after disaster strikes. After all, if it ain’t broken, why fix it, giving yourself unnecessary hassle? But if a fiasco blows up and many people get burnt, that’s when it catches the attention of politicians. It was reported today that US Treasury Secretary Henry Paulson is proposing the creation of new regulatory agencies with broad powers over lending, the securities industry and business conduct, according to the draft of a study he commissioned in June. The proposal which was circulated among government agencies this week, suggests the merging of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), both of which are embroiled in a power struggle. The SEC regulates investment banks, securities and stock exchanges, while the CFTC oversees about $4.2 trillion daily turnover of products ranging from pork belly to currencies. The draft also recommends more power for the Federal Reserve. While a representative from the Treasury Department said the draft report “is not current”, financial lobbying groups including the Securities Industry and Financial Markets Association, welcome the move.

Even though Citigroup upgraded investment bank Lehman Brothers [[leh]] shares to a buy rating from a hold recommendation held by the firm since Sept 13 2003, its shares dropped as options traders increased bearish bets. There are almost four times more put options traded (puts are options that give the right to sell Lehman shares) compared to calls (options to buy). Implied volatility, the main gauge of options prices, jumped to 102.84 from 88.22 yesterday, indicating traders anticipate bigger swings in the share price.

Merrill Lynch [[mer]] shares fell as well. Citi [[c]] and American Express [[axp]] were the biggest losers in the Dow Jones Industrial Average [[^dji]], falling 4.4% to 20.83 and 3.8% to 43.15, respectively.

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