ORAL STATEMENT OF

                     ARTHUR LEVITT, CHAIRMAN
             U.S. SECURITIES AND EXCHANGE COMMISSION

                      CONCERNING H.R. 718,
     THE "MARKETS AND TRADING REORGANIZATION AND REFORM ACT"
   BEFORE THE SUBCOMMITTEE ON CAPITAL MARKETS, SECURITIES AND
      GOVERNMENT SPONSORED ENTERPRISES OF THE COMMITTEE ON
                 BANKING AND FINANCIAL SERVICES
             UNITED STATES HOUSE OF REPRESENTATIVES
                         MARCH 30, 1995
     Chairman Baker and Members of the Subcommittee:

     I am pleased to appear today to testify on behalf of the
Securities and Exchange Commission regarding H.R. 718, the
"Markets and Trading Reorganization and Reform Act" introduced by
Chairman Leach and Congressman Wyden, which would merge the
Commodity Futures Trading Commission and the SEC.

     In most fundamental respects, the markets for stocks, stock
options, and stock index futures are closely linked.  The
economic forces that affect these markets, the investment banks
and institutional investors that are their major participants,
and the trading strategies used by market participants, are all
interrelated. 

     Indeed, the United States is the only country with developed
capital markets that divides the regulation of equity securities
from the regulation of futures on stock indexes.  The Merger Bill
would end this anomaly by merging the SEC and the CFTC into a new
agency, the Markets and Trading Commission.

     Mr. Chairman, as you may know, I came to the Commission
after a long career in the securities industry, and that
experience has inevitably served to shape my views.  

     I well recall the difficulties that arise when one is
subject to regulation by several different entities -- state
regulators, federal regulators, self-regulatory organizations,
and others, all with their own rules, regulations, and
priorities.  I know the costs, in time, in resources, and, most
importantly, in effectiveness. 

     Let me begin, then, by admitting that I come to this issue
with a bias in favor of eliminating redundancies.  In a perfect
world, I would -- wherever possible -- rather have one regulator
than two, three, four, or five.  

     At the same time, my brief period in government service has
enabled me to appreciate the difficulties involved, once you have
a working system in place, in dismantling that system and
erecting a new one to replace it. 

     A merger of the two agencies would seem to make sense not
only from a business standpoint, but from a "good government"
perspective as well.  

     It would streamline and consolidate the regulatory oversight
of the securities and commodities markets.  

     It would provide a mechanism to address questions for the
agencies and for the markets regarding the jurisdiction of the
two agencies.  

     It would reduce some of the administrative costs of the
current system.

     On paper, a merger has many advantages and seems fairly
straightforward.  But when we consider some of the circumstances
in the actual day-to-day world in which we propose to effect it,
I must confess that it becomes somewhat less appealing. 

     Let me attempt to explain why:  When I arrived at the
Commission almost two years ago, I outlined four key objectives:
reforming our municipal debt market; raising professional
standards among brokers; enhancing investor protections; and
internationalizing our markets.  

     Since that day, the Commission has worked hard to stay on
that course, and as you know, Mr. Chairman, we've made great
progress.  To take just one example, we banned the pernicious
practice of "pay-to-play" in our municipal debt markets,
something that many people said could never be done.

     While I generally favor a merger, I am reluctant to devote
the Commission's time and energy to an issue that might divert us
from our central priority of protecting the interests of
investors.  

     Having sketched my general thoughts about a CFTC-SEC merger,
let me now speak more specifically about the bill in question. 
The Commission has three concerns about this particular
legislation:

     First, it would create an agency with less independence than
the SEC or the CFTC.  I have outlined this potential impact of
the legislation in an attachment to my written testimony.  The
question of independence is of such crucial importance that,
should Congress actually decide, in the final analysis, to
proceed with a merger, I would advise that it do so through
legislation that preserves and strengthens the independence of
the two agencies when combined.  

     Our second concern is that the merger bill could impede the
resulting Commission with what seem to be unnecessary
restrictions and inconsistencies.  The Merger Bill anticipates
that the new agency will be subject to divided congressional
oversight by both the SEC's and the CFTC's current oversight
committees.  

     The bill would also create a Federal Financial Markets
Coordinating Council.  In my judgment, a merger of the SEC and
the CFTC would not necessitate the creation of such a Council. 
Further, this new Council would be duplicative of other
coordinating bodies, particularly with respect to the activities
of the President's Working Group.  

     Our third and final concern has to do with costs and
benefits.  No one should underestimate the commitment of time,
money, and resources that a merger will entail, both for Congress
and for the two agencies.  This factor should be carefully
considered as the Committee decides whether to proceed with any
merger legislation. 

     Mr. Chairman, to sum up, there are costs and inefficiencies
associated with our bifurcated regulatory system.  A merger would
certainly help address some of the weaknesses in that system. 
But at the same time, there have been significant improvements in
SEC-CFTC coordination that have helped to reduce those costs and
will serve as a framework for ongoing coordination.  Congress
must weigh the time and resources necessary to merge the agencies
against the potential benefits.

     We are grateful to the Committee for the attention they have
brought to this important issue.  We remain prepared to assist
you in any way possible.
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