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U.S. Securities and Exchange Commission

CFTC and SEC Issue Rules for Trading Futures on Debt Security Index Contracts


Washington, D.C., July 10, 2006 - The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) today are jointly issuing final rules that will permit trading of futures on debt indexes and debt securities.

The joint rulemaking is necessary because, under current regulations, trading futures on debt and debt indices is essentially forbidden. The federal law that governs the subject, however, specifically gives joint rulemaking authority to the two agencies to permit the trading of futures on indices composed of debt securities.

To achieve the aims of investor protection and market integrity, the final rules provide that a future on a debt security index not subject to SEC regulation must be broad-based. This requirement is designed to ensure that the securities making up the index are not readily susceptible to manipulation. (The opportunity for manipulation could exist if an index covered too few securities, or a significant number of illiquid securities.) The rules will exclude certain debt indices from the definition of a "narrow-based security index," by providing criteria that are specifically relevant to debt securities. Futures contracts on debt securities indices that are excluded from the definition of "narrow-based securities index" under the rules will trade subject to regulation by the CFTC. Security futures on debt securities and narrow-based debt indices can be traded on futures exchanges and securities exchanges subject to joint regulation by the CFTC and SEC.

The rules advance the goal of the President's Working Group on Financial Markets to create a new class of tradable derivatives contracts.

SEC Chairman Christopher Cox said, "The products that can be created under these new rules will offer additional ways to diversify and manage risk, benefiting investors and the capital formation process. I want to thank Chairman Jeffery and the CFTC staff for their efforts in working so creatively and constructively with the SEC in crafting these important rules."

CFTC Chairman Reuben Jeffery III said, "Today, we take an important step toward fulfilling the promise of the Commodity Futures Modernization Act by clarifying the standards for broad-based and narrow-based debt indices. These standards will free exchanges to offer, and investors to trade, these important risk-management products. I want to commend Chairman Cox and the SEC staff for their invaluable contribution to this effort."

Copies of the final rules are available on the websites of the CFTC and the SEC, at www.cftc.gov and www.sec.gov, respectively.



Modified: 07/13/2006