Occupy the SEC Submits Letter to SEC Regarding Proposed Exchange-Traded Products (ETP) Regulations

Occupy the SEC (“OSEC”) has submitted a letter to the Securities and Exchange Commission regarding that agency’s oversight over Exchange Traded Products (ETPs). OSEC argues that the ETP market, which currently constitutes over a quarter of U.S. equity trading by dollar value, is in dire need of enhanced regulation.

As it stands, the current ETP underwriting system unfairly privileges certain “Authorized Participants,” who are typically large financial institutions. The ETP market structure grants these privileged few an uneven first-mover advantage, all the while discouraging and eliminating competition. The ETP arena can best be described as an oligopoly, which concentrates risk and makes the market less efficient. Thus, OSEC argues, it is paramount that the SEC espouse policies that permit everyday, retail investors to compete on an equal footing with sophisticated ETP underwriters and other parties enjoying information advantages.

In granting past ETP exemptions, the SEC has regurgitated industry arguments that market-based arbitrage opportunities are sufficient to correct any discrepancies between ETP prices and underlying reference prices. In doing so, the agency has ignored two keys points. First, even where arbitrage successfully corrects price mismatches, it does so by creating unfair windfalls for savvy institutional investors who can capitalize on information asymmetries and operational advantages to extract value from the market. Second, it is not clear that arbitrage in the ETP market produces the stabilizing effects that the SEC presumes. In its letter, OSEC urges the SEC to implement a market structure for ETPs under which retail investors are placed on a level playing field with their more sophisticated competitors. OSEC also urges the Commission to enhance disclosure requirements, not dilute them, as these requirements are an important tool for tackling the fundamental lack of transparency that is inherent to the ETP market. ETP issuers and broker-dealers must not be awarded broad exemptions from long-standing regulatory requirements.

The proliferation of speculative activity caused the 2008 financial conflagration. Unless the SEC implements effective controls over ETPs, these securities are likely to serve as an accelerant for the next fire.

OSEC Policy Paper: Insider Trading Gets a Free Pass – The Relaxation of Liability Under U.S. v. Newman

U.S. v Newman, a recent decision by the Second Circuit Court of Appeals, is a deeply troubling dilution of insider trading law.  The attached policy paper explains OSEC’s position on the case in further detail.  The following is an executive summary of the paper:

A Brief History

Newman involved two hedge fund managers who were originally tried and convicted for their roles in an insider-trading scheme involving the trading of Dell and NVIDIA securities based on significant nonpublic information.  The managers appealed their conviction and the decision was overturned. Occupy the SEC firmly believes that the Court of Appeals has made a grave error in overturning its Newman decision.

Insider trading is considered the buying or selling of a security by an individual who has access to material nonpublic information about the security. Insider trading can be illegal or legal, but is only illegal when the material information forming the basis for a trade is still nonpublic. Thus, illegal insider trading can include tipping others when one has any kind of nonpublic information.

Current insider trading law was established under the Securities Act of 1934 (“Act”).  The Act was created to provide governance of securities transactions, and to control exchanges and broker dealers in order to protect the public. Sections of the Act are devoted to combating fraudulent or deceptive activity that would harm the general public.

Current Relevance

Numerous entities were engaged in insider trading activities during the financial crisis of 2008, notably banks and other financial institutions. Bankers traded on their own stocks because they foresaw the underperformance of their own institutions that contributed partially to the housing market’s burst bubble and ultimately broke the public’s trust. While a corporation’s officers and other insiders are meant to act in the shareholder’s best interests, many such individuals violated that trusting relationship by engaging in insider trading.  Profiting from non-public information (at the expense of individual investors) indicates the lack of a fair or equitable market and severely damages the operation of thriving capital markets.

The Real Effect of U.S. v Newman

Newman adopted an extremely narrow interpretation of the “knowledge” requirement applicable to insider trading cases.  Under this standard, professionals will be able to easily evade liability despite their participation in insider trading schemes.  Professionals will be able to either go to great lengths in order to remain blind to any information of personal benefit or flat out deny any knowledge of these benefits in order to get off scot-free. Supporters of the Newman decision claim it clarified a previously ambiguous understanding of insider trading regulation. However, despite claims that they are overbroad, the pre-Newman interpretations of insider trading law are the most effective when it comes to policing insider-trading activity because those decisions held professionals involved in insider-trading schemes accountable for their actions. The Newman decision loses sight of an important policy consideration: that it is unfair to grant those with greater access to information an advantage over those who are not business experts. The Newman decision will indisputably have an adverse impact on future insider-trading rulings.


In order to reverse the Newman’s unquestionably adverse impact on insider trading liability, overturning the decision completely would be the best and most important thing to be done in solving this problem. Furthermore, the judiciary should adopt an enterprise liability standard, whereby constructive knowledge (and not just actual knowledge) if sufficient to meet the knowledge requirement under insider trading law.  Finally, in order to ensure that such an unsound decision does not occur again, Congress must intervene and execute legislation that clarifies any ambiguities in insider trading law.

Occupy the SEC Submits Letter to Department of Labor Regarding its Proposed Implementation of Fiduciary Rule

Occupy the SEC (“OSEC”) has submitted a letter to the Department of Labor (“DoL”) regarding that agency’s proposed fiduciary rule, which would significantly change the standard of conduct that applies to investment advisers dealing with certain retirement accounts.

The DoL’s proposed fiduciary rule is a vital change because it reflects a basic market reality: investors (and even sponsors and plan employees) believe that professionals providing retirement advice have the investor’s best interest in mind. Unfortunately, many retirement advisers do NOT have the investor’s very best interest in mind, for the simple fact that that is not legally required under the current suitability standard. In its letter, OSEC argues that a strong fiduciary rule is necessary to bridge the gap between investor expectations and the law.

OSEC recommends that the agency set forth a clear rule that minimizes exceptions to the applicability of the fiduciary standard. A proper understanding of the term “fiduciary” does not tolerate the number of exemptions crafted by the DoL in the Proposed Rule. OSEC urges the agency to avoid adopting a contrasting approach that pays lip-service to the heightened fiduciary standard while simultaneously invoking that standard with sweeping exemptions that resurrect the old suitability standard.

Furthermore, OSEC encourages that the Final Rule safeguard the interests of plan participants/beneficiaries and IRA Holders, broadly cover entities as investment advisors, and harmonize with existing fiduciary requirements while accounting for the unique characteristics of the fissured ERISA service provider environment. Ultimately, the Rule must protect investors by establishing clear standards that facilitate compliance and obviate the need for Agency and other enforcement actions for misconduct.

Occupy the SEC is a group of concerned citizens, activists, and financial professionals that works to ensure that financial regulators protect the interests of the public, not Wall Street. For further information, visit http://occupythesec.org or email info@occupythesec.org.

Occupy the SEC Urges Global Regulators to Address Systemic Risks Posed by Asset Management Industry

Occupy the SEC (“OSEC”) has submitted a letter to the Financial Stability Board (“FSB”) and the International Organization of Securities Commissions (“IOSCO”) recommending that these international regulators address the systemic risks posed by global asset managers. In its letter, OSEC points to weaknesses in the measures that these regulators have proposed to designate asset managers or funds as Globally Systemically Important Financial Institutions (G-SIFIs). OSEC also urges the FSB/IOSCO to pursue industry-wide regulatory measures to address systemic risks that asset managers pose.

The FSB and IOSCO set the global framework for policy that national regulators, including the SEC, are expected to follow. The FSB requested comment on a second draft of a proposed methodology to be used to designate asset management companies, among others, as systemically important financial institutions. Asset managers have contributed to systemic crises in the past and regulation is needed to reduce these risks. OSEC has commended the FSB/IOSCO for broadening the methodology relative to the first draft but argues that their focus is still too narrow. In particular, the methodology only considers risks related to the failure of a fund or asset management company even though asset managers often contribute to systemic risk without themselves failing.

OSEC also exhorts the FSB and the IOSCO to pursue more comprehensive measures to mitigate or systemic risks created, propagated or amplified by, asset managers. The IMF devoted a chapter of its most recent Global Financial Stability Report to these risks and concluded that “assessments of individual institutions are not sufficient for assessing systemic risk.” OSEC notes with dismay that the IOSCO has not followed up on its 2011 study of tools for securities regulators to use to mitigate these risks. These concerns are particularly timely considering the contemplated withdrawal of quantitative easing by central banks and the “taper tantrum” that occurred last fall. In addition, OSEC’s letter points out that there are numerous global trends involving asset managers that exacerbate these risks. For instance, funds have increased their use of leverage and derivatives. In addition, asset managers are assuming roles traditionally performed by banks as part of the precarious “shadow banking system.”

OSEC notes the FSB’s acknowledgement that global regulators lack the information needed to understand the risks posed by asset managers, particularly separately managed accounts. OSEC urges the IOSCO, and national regulatory agencies, to address this weakness and to implement stress testing to better understand existing risks, including the complex interactions among asset managers, the markets and other financial institutions.

In its comment letter, OSEC asserts that the risks that asset managers have presented in the past still remain, and that the FSB’s and IOSCO’s collective failure to tackle these problems at this juncture would worsen financial crises and cause greater economic hardship in the future.

Occupy the SEC Submits Comment Letter to Financial Stability Oversight Council on Systemic Risks in the Asset Management Industry

Occupy the SEC (OSEC) has submitted a comment letter to the Financial Stability Oversight Council (FSOC) in response to that agency’s request for comment on the systemic risks posed by the asset management industry.

Asset managers have created, propagated and amplified systemic risk during past crises. While some past weaknesses have been addressed by the Dodd-Frank Act, many such weaknesses have not, and the markets have recently seen many developments that could create new risks.

Asset managers and investors are key components of a shadow banking system that plays an increasing role in the financial system, and poses significant systemic risks through money market funds and other segments of finance. Therefore, there is every reason to believe that asset managers still have the potential to create, transmit or amplify systemic risks.

In its comment letter, OSEC expresses its concern about these systemic risks, with a particular focus on the direct and indirect impact that those risks would have on the 99%. OSEC recommends that regulators impose periodic stress tests and gather real-time trade data to allow maximum visibility into a market that has been notoriously secretive.  OSEC also warns that particular attention needs to be paid to derivatives and the burgeoning of so-called “liquid alternative” investments.

OSEC Member Perspective – Occupy the SEC Submits Amicus Brief to the Supreme Court in Bank of America N.A. v. Caulkett, Advocating for Strip-off of Underwater Mortgages During Chapter 7 Bankruptcy

By Simisola Durosomo

Occupy the SEC (“OSEC”) has submitted an amicus brief in Bank of America N.A. v. Caulkett, and Bank of America N.A. v. Toledo-Cardona, two consolidated cases presently pending before the U.S. Supreme Court. Oral argument for these cases is set for Tuesday, March 24, 2015.

These cases focus on Sections 506(a) and 506(d) of the Bankruptcy Code, which, if read together, provide that a completely underwater lien must be voided under a Chapter 7 process. The Petitioner, Bank of America, claims that a Chapter 7 filing should not cause the strip off of an underwater second mortgage. Rather, an unsecured creditor should be allowed to uphold the lien, even if the mortgage is underwater and worthless. Bank of America takes the stance that sections 506(a) and 506(d) should be interpreted separately when it comes to determining the meaning of the term “allowed secured,” in keeping with the flawed reasoning of a prior Supreme Court case Dewsnupp v. Timm (1992).

In its amicus brief, OSEC argues that Bank of America’s position would produce a great injustice to those individuals who have filed for Chapter 7 bankruptcy. OSEC reminds the Court that a central purpose of bankruptcy law is to afford unfortunate debtors a “fresh start.” The banking industry’s misconduct has fueled, and continues to fuel the mortgage crisis. The bipartisan Financial Crisis Inquiry Commission found banks to be culpable in bringing about the Great Recession of 2008. The crisis distressed the economic status of millions of homeowners — currently there are 2.1 million underwater borrowers who are at risk of impending default and possible foreclosure.

The legislative history behind the implementation of §506 shows that subsections (a) and (d) were intended to be read jointly. Numerous House and Senate reports supplementing the passage of the Bankruptcy Code of 1978 confirm this. In fact, any ambiguities in understanding §506(d) can be remedied by reading that statute in conjunction with §506(a). OSEC also points to several policy considerations that favor the strip-off of wholly underwater liens during Chapter 7 liquidation.

OSEC Member Perspective – Bank Lobbyists Tread Familiar Ground in Omnicare Supreme Court Case

By Brandon Lev

Today the Supreme Court heard oral argument in Omnicare v. Laborers District Council Construction Industry Pension Fund, a case arising out of the Sixth Circuit. Omnicare is alleged to have misled investors about the legality of its pharmaceutical rebates and other practices.  The case centers on Section 11 of the Securities Act, which prohibits material misstatements in securities registration statements. Specifically, the Court will decide whether a Section 11 plaintiff must plead that the defendant subjectively knew that an offending misstatement of opinion was false.

By imposing this subjective knowledge requirement, the Court could severely undermine Section 11, which is a valuable tool in the toolbelt of aggrieved investors. Not surprisingly, industry lobbyists have lined up in support of the whittling down of Section 11.

The amici curiae briefs submitted in this case by the Chamber of Commerce (CC) and the Securities Industry and Financial Markets Association (SIFMA) demonstrate the troubling reasoning that underlies legal arguments supportive of Omnicare.

In its brief, the CC attempts to undermine the Omnicare investor-plaintiffs’ Section 11 claims by highlighting the Court’s prior contention that section 11 places a “relatively minimal burden on the plaintiff.” Furthermore, CC asserts that the strict liability interpretation of Section 11 poses untenable peril to businesses by punitively targeting innocent mistakes of opinion. They claim that this interpretation “…would deter issuers from engaging in public offerings in the United States.” Thus, CC believes that companies’ public offerings are predicated at least in part on the ability to express any self-assessing opinion regardless of objective fact and free from any accountability or risk. This is noteworthy because CC suggests that if any transaction between businesses and customers is to be fair, the burden of accounting for risk should be placed more heavily on investors. Because Section 11 does not conform to this conception of fairness, the CC believes the Court should instead rely on precedent formed by cases involving SEC Rule 14a-9.

CC’s argument is based heavily on Virginia Bankshares and the interpretation of SEC Rule 14a-9 contained therein. Under such guidelines, plaintiffs would be required to prove that not only was the information presented to them false, but that Omnicare representatives knowingly presented this false information as true. Thus, CC’s argument can be characterized as demanding that burdens be shifted from businesses to shareholders, and that these burdens be virtually impossible to meet. Indeed, the above interpretation of Rule 14a-9 demands nothing short of gleaning information directly from another person’s mind. Such a burden of proof seems excessively stringent.

In contrast to CC’s preference for Rule 14a-9, SIFMA challenges directly the Sixth Circuit’s reading of Section 11. They argue that Section 11 “is not a strict liability statute.” Instead, it provides a narrower form of liability by granting underwriters due diligence protections if they have “reasonably investigated” and “reasonably believe” that the opinion expressed by an issuer is true. In essence, SIFMA argues that the strict liability interpretation of Section 11 is unfair because it punishes companies simply for being mistaken in their own beliefs, and does not provide specific guidelines by which underwriters can assess the veracity of issuer statements. Again, these arguments seem to hinge on the belief that in order for businesses to flourish, they must be absolved of the risks associated with offering securities. Instead, such risks should be placed squarely on the shoulders of investors and consumers, because the opinions expressed by issuers are sufficient for consumers to make educated investment decisions.

The above arguments are rooted largely in precedent established by the Supreme Court, and demonstrate the extent to which financial regulations have been interpreted so as to benefit businesses rather than consumers. Thus, Omnicare presents the Court with an opportunity to reverse these retrograde interpretations. In its own amicus brief, Occupy the SEC has urged the Supreme Court to uphold the Sixth Circuit’s strict liability interpretation.

At stake is here is whether or not our economy can be a fair institution that benefits the public.

Occupy the SEC Submits Amicus Brief to U.S. Supreme Court in Omnicare, Inc. v. Laborers, Advocating for Victims of Misrepresentation in Securities Offerings

Occupy the SEC (“OSEC”) has submitted an amicus brief in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, a case that is currently pending before the U.S. Supreme Court. The case centers on a key provision of the Securities Act of 1933 (“’33 Act”), Section 11, which creates an express right of action against issuers and their agents for material misrepresentations contained in the offering materials of registered securities.

Shoddy mortgage-backed securities played a pernicious role in the recent financial crisis, which destabilized the capital markets, soured the global economy and jeopardized the financial position of the average person. In the run-up to the crisis, the registration statements of many toxic securities falsely touted these instruments’ credit-worthiness, to the financial detriment of investors. Unfortunately, enforcement agencies such as the Securities and Exchange Commission have been of limited effectiveness in adequately addressing these wrongs. Section 11 is an important tool that aggrieved investors can use to seek remedy for misleading statements made by issuers and their agents.

Both Supreme Court precedent and the legislative history of the ’33 Act support the view that a Section 11 plaintiff need only allege a material misrepresentation in order to establish a claim. However, the Petitioners in this case (and numerous pro-industry lobby groups) have urged the Court to upend this history by requiring Section 11 plaintiffs to prove that the speaker of a materially misleading statement of opinion actually held a different opinion than the one expressed (“subjective falsity”).

OSEC’s amicus brief rejects the “subjective falsity” requirement, arguing that this novel standard would severely inhibit aggrieved investors from seeking redress for material misrepresentations contained in offering documents. The Supreme Court will hear oral arguments on the case in the upcoming term.

Occupy the SEC Submits Letter to SEC Re: Clearing Agency Regulations

Occupy the SEC (“OSEC”) has submitted a comment letter to the Securities and Exchange Commission (“SEC”) regarding that agency’s notice of proposed rulemaking on systemically important and security-based swap clearing agencies.

As numerous commentators have asserted, swaps and other exotic OTC derivatives contributed to the recent financial crisis.  These often-complex instruments were traded on shadowy markets and enabled an exponential growth of leverage and unpredictable, interconnected risk.  Under the banner of financial innovation and competition, these derivatives allowed sophisticated market players to exploit ordinary homeowners, municipalities and others.  The Dodd Frank Act has sought to shed light on these opaque markets, by requiring derivatives to be cleared through registered agencies.

This shift could be a useful means to bring shady derivatives transactions “out of the shadows,” provided of course that clearing agencies are themselves robust and stable.  In some ways the risk associated with derivatives has not gone away – it has simply shifted to clearing agencies.  Thus, it is vital that the Commission not only promulgate strong regulations covering such agencies, but also enforce such regulations in a vigorous manner.

The SEC has proposed a dual framework for the regulation of registered clearing agencies, applying general standards under Rule 17Ad-22(d) for new entrants, and a more rigorous set of standards for covered clearing agencies under Rule 17Ad-22(e).  OSEC supports this dual framework, as it will allow new entrants to more firmly establish themselves as clearing agencies, which is important for the deconsolidation and diffusion of risk across the market.

Even so, in its comment letter OSEC has recommended that the Commission remain vigilant to prevent companies from engaging in regulatory arbitrage to avail of relaxed standards under Rule 17Ad-22(d).  OSEC also urges the Commission to exercise its blanket authority to designate risky companies as  “covered clearing agencies” subject to the stringent requirements of Rule 17Ad-22(e).  Further, OSEC urges the Commission to expand the role of external auditing to ensure compliance with clearing rules.

Occupy the SEC Submits Letters to Federal Reserve Board of Governors in Response to its Advance Notice of Proposed Rulemaking on Risky & Anticompetitive Physical Commodities Transactions under the Bank Holding Company Act

Occupy the SEC (“OSEC”) has submitted a letter to the Federal Reserve Board of Governors (“Board”) regarding that agency’s advance notice of proposed rulemaking on physical commodities transactions under three provisions of the Bank Holding Company Act (“BHCA”). The Board revisits these provisions at a time when the Dodd Frank Act’s momentous changes in systematic risk regulation and recent abuses of the BHCA demand heightened prudential regulation, including heightened examination and leverage-based and risk-based capital requirements, and divestiture of existing commodities operations. 

The Board now has the opportunity to reinstate the historical separation in American law between financial and commercial activities that kept banks from becoming Too Big to Fail and overwhelming the economy.  It can prohibit institutions that receive federal depository insurance and implicit federal guarantees to act in a manner that threatens environmental pollution and risks systematic financial contagion. It can limit or mitigate speculation in physical commodities and derivatives markets that has created artificial scarcity in products such as wheat and oil on which billions of people—and governments—are reliant.

The BHCA, passed in 1956, was only one response to concentration in the banking industry and repeated financial crises at the turn of the 20th century that often began with speculative commodities transactions.  Those crises also led to progressive citizens’ movements, and the Clayton Antitrust and the Federal Reserve Acts of 1913.  These laws helped prevent banks from limiting innovation and controlling financial and commodities markets—as well as the institutions of government themselves.

The Board must implement the systematic risk provisions of the Dodd Frank Act and the Volcker Rules’ limits on proprietary trading in limiting unsafe physical commodities operations.  The Board recognizes in the ANPR the risk that physical commodities operations in such fields as petroleum trading and refining pose to a still heavily leveraged and overly complex financial system.  OSEC agrees that a single environmental risk involving a Bank Holding Company (“BHC”) or Systematically Important Financial Institutions (non-BHCs) under Title I of the Dodd Frank Act could suffer liability, reputational, and liquidity risk that would threaten institutional survival and could contaminate and destroy the financial system.  The Deepwater Horizon disaster and the extensive operations of BHCs in fields such as energy management are excellent examples of the operations’ multi-tiered threats.  As a result, the Board cannot ignore that license that Title I provides for it to institute severe leverage-based and risk-based capital requirements, reporting and disclosure requirements, and liquidity requirements, among other regulations.  The merchant banking rules, with permit passive investments in companies with physical commodities trading operations, are limited under the Volcker Rule’s restrictions on private equity investments.  The Board must also institute reporting and disclosure requirements, more extensive bank monitoring, and limit the duration and active management of merchant banking investments.

The ANPR does not comprehend that BHC physical commodities trading threatens more volatile core commodities prices and the growth of the economy and jobs.  The Board, however, has a dual mandate to limit inflation and ensure full employment and cannot only concern itself with the stability of a jury-rigged and unreliable financial system as it threatens to malfunction and explode. OSEC contends that the physical commodities trading operations risk the productivity and safety of the entire economy and stable, dependable job growth.  They also threaten to limit access to vital commodities such as wheat, soybeans, aluminum, and oil and cause increased poverty and geopolitical disruption.

OSEC contends that the Board intensified these dual crises when it failed to apply the proper criteria in its actions on the complementary, grandfathering, and merchant banking provisions of the BHCA.  The Board, starting in 2003, approved such actions as petroleum trading as complementary to financial activities without properly analyzing their risks to financial system and firm safety and soundness as well as competition in the physical commodities markets.  Evidence of illegal price manipulation and risky activity demands the rescission of those orders and divestiture of physical commodities operations.  The Board improperly interpreted the temporary and permanent grandfathering provisions of the Act to permit new BHCs to hold onto an unlimited swath of physical commodities activities.  The Act generally allows for only a three year temporary conversion period, with two extensions, and institutions such as JP Morgan and Goldman Sachs that became BHCs after Sept. 1999 can only hold onto physical commodities activities they possessed in Sept. 1997.  OSEC asserts that the Board implemented merchant banking rules with few restrictions on the lengthy term they can be held or on active BHC management of subsidiaries and little role for active internal Board monitors at those institutions.

These omissions demand that the Board revisit its regulations and orders and require divestiture or at least extensive prudential limits on physical commodity operations.  The recent financial crisis illustrated the limits to prudential regulation and tools such as Value at Risk for both banks and regulators when it comes to unpredictable and severe crises.  We recommend that the Board adopt a precautionary approach and at least require transparent reporting and disclosure, significant leverage-based and risk-based capital requirements, liquidity requirements, and limits on the duration and intensity of BHC management of operations.  Prudential regulation would mitigate but not resolve the difficulties with the current BHCA operations.

Indeed, the Board fails to recognize in its ANPR that physical commodities operations could result in massive environmental liability and that the Federal government could become responsible for initial remediation and cleanup costs.  Under statutes such as Superfund (CERCLA), the possibility that the Federal government will become responsible for initial remediation costs is significant.  There is a possibility of massive initial, or even permanent, social and environmental disruption even if the polluter does not evade its responsibilities under the bankruptcy or resolution procedures under Title II of the Dodd Frank Act.  There is no justification for providing a further subsidy so that BHCs can engage in risky and socially unproductive activities.

The Board has also failed to recognize that the massive and cumulative physical commodities investments permitted under the complementary provisions of the BHCA require that the agency issue an Environmental Impact Statement.  The National Environmental Protection Act (“NEPA”) requires that agencies make such statements before certain major agency actions, such as permitting risky petroleum drilling, to allow for a fully informed process.

The Board, finally, fails to square the explicit and implicit subsidies that BHCs receive with their negative effects on physical commodities and derivative markets as well as productivity.  Since deregulation in the 1980s, physical commodities and derivative markets have increasingly resembled other speculative financial markets.  Further permission for speculation will allow unfair competition with BHCs using the massive capital structures that are the product of heavy government guarantees to concentrate resources and benefit from insider information to the detriment of customers and the public.  Recent Federal Energy Regulatory Commission enforcement actions against J.P. Morgan and other BHCs manipulating the energy markets illustrate the negative effects on the economy.  Although certain customers could benefit from deals, they threaten the productivity and stable growth of the economy.

OSEC contends there is no justification for allowing activities that were the subject of criminal prosecution in the Enron crisis and which threaten global financial safety to continue.  The Board must significantly revise its prior orders and regulations to permit a safer, more productive financial sector and a wider economy that works for the benefit of all.