Born to yield the helm of futures trading panel

She stirred criticism by initiating review of derivatives

Regulators

January 20, 1999|By BLOOMBERG NEWS

WASHINGTON -- Brooksley Born, who angered Wall Street and fellow regulators when she suggested that investments known as derivatives may need regulation, will quit as head of the U.S. Commodity Futures Trading Commission after her term ends April 13.

"After careful consideration, I have decided that I would prefer to return to the private practice of law," Born, 58, said in a letter yesterday to President Clinton.

Born joined the commission as chairwoman in August 1996. Under her leadership, the commission began a review in May of the $70 trillion market in over-the-counter derivatives, privately negotiated contracts whose value is tied to the market performance of bonds, commodities, currencies, stocks or other assets.

The review -- by an agency that regulates futures exchanges -- set off alarms among banks and securities firms, which feared that even the prospect of regulation would cause some contracts to be broken and drive the industry overseas.

Companies and money managers use derivatives, such as interest rate swaps, to protect against price changes -- or to profit from them.

The derivatives review also sparked criticism from Treasury Secretary Robert E. Rubin, Federal Reserve Board Chairman Alan Greenspan and members of Congress.

Congress went so far as to pass a law forbidding the commission from even proposing new restrictions on derivatives before March 30.

Born, the agency's seventh chairman, began an attempt to modernize and streamline regulation of the futures market, which faces increasing competition from electronic trading systems and over-the-counter derivatives.

In recent months, Born has pointed to the $3.6 billion takeover of Long-Term Capital Management LP as evidence that over-the-counter derivatives pose a danger to the markets in general. "I would hope this would be a wake-up call to everyone involved in this market about the potential dangers in the market, and the risk they're running by participating in a market that is so opaque," Born said last fall.

The issues she highlighted have come to the forefront of financial regulators' attention since then. A Clinton administration group is in the midst of separate studies of hedge funds and derivatives.

"Brooksley was and is clearly right that enormously consequential issues are at stake and sophisticated oversight of these markets is needed," said Rep. Jim Leach, the Iowa Republican who chairs the House Banking Committee.

Pub Date: 1/20/99

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