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Futures Group Copes With Taxes from Washington, Competition from Abroad

March 20, 1993

BOCA RATON, Fla. (AP) _ As groundskeepers at the Boca Raton Hotel and Beach Club cleared the palm fronds and other debris downed by the latest winter storm, commodity traders inside were wrestling with the winds of change blowing in from Washington and overseas.

The Clinton administration has proposed a 15-cent fee on every futures contract transaction, projecting it could raise more than $235 million over four years - enough to fund the industry regulator, the Commodity Futures Trading Commission.

But exchange executives and traders, gathered at this pastel pink resort for the 18th annual conference of the Futures Industry Association, fear the levy will only make doing business more expensive and push their customers into trading on less regulated - and less expensive - foreign exchanges.

They point out that the third largest futures trading exchange is the London International Financial Futures Exchange, started a little more than 10 years ago. All but three of the world’s top 10 futures and options exchanges are overseas, 1992 industry statistics show.

″It’s a very, very bad idea,″ New York Mercantile Exchange Chairman Daniel Rappaport said of the transaction tax, warning that the government will never be able to collect from U.S.firms because their customers ″will just trade someplace else. Money moves at the push of a button.″

Mindful of Clinton’s warning to special interest groups not to pick apart his package of spending cuts and tax increases without offering alternatives, Chicago Mercantile Exchange Chairman John Sandner presented a sweeping plan to scrap the entire structure of government financial regulation.

Replacing it would be one super agency, that would oversee not just futures and stock markets, but also mutual funds, bank loans and insurance.

Eliminating duplicative operations alone could save $300 million a year in administrative costs, said Sandner.

Washington observers gave the plan little chance of clearing the jurisdictional thicket of competing congressional committees that have blocked previous plans to merge regulators.

Acting CFTC Chairman William Albrecht cautioned that ″it doesn’t matter how many referees there are if you use an outdated rulebook.″

Instead he proposed eliminating a number of obstacles hampering U.S. futures exchanges from entering the mushrooming - $4 trillion at last count - business in interest rate and currency swaps.

In other developments at Boca:

- association chairman Hal Hansen and others renewed their call for a two- tiered regulatory system that would lighten the rules for sophisticated, institutional clients, while still protecting small retail investors;

- the Nymex’s Rappaport said his energy futures exchange might add itself to the list of suitors for New York’s Commodity Exchange Inc., already wooed by the neighboring Coffee, Sugar & Cocoa Exchange and the Chicago Board of Trade.

- nearly everybody had an opinion on the lengthy presentation by Thursday’s breakfast speaker, author Tom Wolfe.

Wolfe treated the crowd to a wide-ranging talk on the state of American culture approaching the 21st century, laced with references to the works of Sinclair Lewis, Thomas Mann and H.L. Mencken, executives’ ″trophy wives,″ Zen Buddhism and his own best-seller ″The Bonfire of the Vanities.″

Afterward Wolfe conceded the topic might have been a little deep for 8 a.m. ″but I figured, well what the hell. In the financial industry there’s a lot of well-educated people (although) they don’t always act that way on the trading floor.

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