Regulators Approve Joint Rules Under Commodity Futures Modernization Act

Washington, DC, August 23, 2001 - The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) approved joint rules under the Securities Exchange Act of 1934 (SEA) and the Commodity Exchange Act (CEA) to implement new statutory provisions recently enacted through the Commodity Futures Modernization Act of 2000 (CFMA).

In accordance with a Congressional mandate, the joint rules provide the methods to be used to determine the "dollar value of average daily trading volume" (ADTV) and market capitalization and address other issues relating to implementation of the CFMA. The adopted rules became effective August 21, 2001.

The CFMA, which became law on December 21, 2000, lifted a previous ban on single stock and narrow-based stock index futures, and established a framework for the joint regulation of these products by the SEC and the CFTC. Specifically, the CFMA amended the definition of "security" in the SEA, the Securities Act of 1933, the Investment Company Act, and the Investment Advisers Act to include a "security future." For purposes of each of these Acts, as well as the CEA, "security future" is defined, in relevant part, as "a contract of sale for future delivery of a single security or of a narrow-based security index." The CEA and the SEA provide various exclusions from the definition of "narrow-based security index." One of these exclusions grants the SEC and the CFTC authority to jointly establish further exclusions from the definition of narrow-based security index. The definition of "narrow-based security index" includes the terms ADTV and "market capitalization," which are not defined by statute. Instead, the CFMA directs the SEC and the CFTC to jointly specify by rule or regulation the methods to be used to determine the ADTV and "market capitalization" for purposes of this definition.