Remarks of Commissioner Barbara Pedersen Holum

Concurring in Part and Dissenting in Part

Proposal of the New York Mercantile Exchange to Permit

the Exchange of Futures for or in Connection with Swap Agreements

The New York Mercantile Exchange ("Nymex") submitted its proposal to permit the exchange of futures for swap agreements ("EFS") to the Commission on February 22, 1997. Now, after a review period of nearly two years, staff is recommending that the Commission (i) restrict approval for a pilot period of three years and (ii) require special cumulative reporting of all EFS transactions during the pilot period. I agree with and join in the action the Commission is now taking to permit EFS transactions. However, for the reasons outlined below, I dissent from the imposition of the pilot program and special reporting requirements.

Adoption of the EFS rule on a pilot basis will discourage participation and detract from the underlying economic utility of the EFS proposal. The EFS proposal is simply an exchange rule that parallels existing "exchange for physical" provisions and serves the exact same economic function. For that reason, imposition of a pilot program is unwarranted.

Also, imposing special comprehensive reporting appears ill-advised for the EFS proposal, especially since existing Nymex and CFTC rules ensure maintenance and availability of applicable trade documents on an as-needed basis. It therefore seems clear that requiring routine filing of trade documents with the CFTC is unnecessarily duplicative and burdensome.

In sum, adopting the proposal on a pilot basis and imposing duplicative reporting requirements will impede the competitive ability of Nymex without any offsetting regulatory purpose. Both regulatory provisions impose economic costs without any compensating regulatory benefits. For this reason, I believe these two regulatory conditions should be eliminated, and the EFS proposal given an unrestricted approval. Also, in my view, the delay in approving this Nymex proposal was unwarranted. Efforts by Commission staff to "fine-tune" oversight mechanisms, as has apparently occurred here, do not justify the substantial delay in acting on this exchange initiative.

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Commissioner Barbara Pedersen Holum Date