Statement on Signing the Futures Trading Practices Act of 1992

Today I am signing into law H.R. 707, the "Futures Trading Practices Act of 1992." This forward-looking legislation is good for America's futures exchanges, good for farmers and ranchers who use futures, and good for U.S. financial markets. Indeed, this modernization of our financial laws will benefit everybody who works and invests in the American economy.

The bill contains an important provision sought by the Administration to give the Federal Reserve Board authority to oversee margin levels on stock index futures. The margin provision is crucial to help avoid the kinds of major market disruptions that occurred in October 1987 and October 1989. It is part of my Administration's continuing effort to adapt financial laws to the "one market" of stock and stock derivative products.

The bill also gives the Commodity Futures Trading Commission (CFTC) exemptive authority to remove the cloud of legal uncertainty over the financial instruments known as swap agreements. This uncertainty has threatened to disrupt the huge, global market for these transactions. The bill also will permit exemptions from the Commodity Exchange Act for hybrid financial products that can compete with futures products without the need for futures-style regulation.

The margin and exemptive authority reforms are critical for keeping U.S. financial markets strong and competitive. The Administration first requested them 2 years ago, and I am delighted that they now have been adopted.

The bill strengthens the ability of the CFTC to police the futures markets, impose tougher penalties on wrongdoers, and obtain assistance from foreign futures regulators. These provisions will further enhance the reputation of the United States as the safest and best place in the world to conduct trading.

Two provisions of the Act could be interpreted in a manner that would raise constitutional concerns and will, therefore, be construed so as to avoid those concerns.

Section 215 purports to direct me to appoint persons to the CFTC who meet certain congressionally mandated criteria. This provision raises constitutional concerns by appearing to circumscribe my power under the Appointments Clause to nominate officers of the United States. I shall treat the provision as containing advisory, rather than mandatory, criteria for appointment.

Section 213(a)(2) directs the CFTC to issue regulations specifying the circumstances under which the governing board of a contract market may issue, without prior CFTC approval but subject to CFTC suspension within 10 days, issue a temporary emergency market rule. To avoid any violation of the Appointments Clause of the Constitution, this section will be construed only to permit the CFTC to waive the usual statutory requirement that it approve such private market arrangements. So construed, the section does not vest exercise of significant governmental authority in the governing boards.

George Bush

The White House,

October 28, 1992.