Thursday, June 4, 2009

Yes, the SEC Regulates Derivatives

Felix Salmon apparently thinks the SEC is "charged with regulating securities but not derivatives." Ezra Klein is quick to offer a me-too post, mocking the SEC for saying "derivatives" when it should have said "securities." Klein says that "[i]t's all the worse because the SEC doesn't have the authority to regulate derivatives, even though that appears to be what some of its employees think the agency is doing." Oy. The SEC does, in fact, have the authority to regulate derivatives. It regulates options (e.g., calls, puts, straddles) on individual securities, options on certain indexes of securities, such as the S&P 100, and exchange-traded options on foreign currency. Options are unquestionably derivatives. What Salmon and Klein probably meant was that the SEC doesn't have the authority to regulate swaps. But swaps aren't the only kinds of derivatives by any means. Confusing swaps and derivatives is what leads idiot journalists* to constantly mislabel derivatives as "unregulated financial instruments." (If journalists think derivatives are all unregulated, then I'm curious what they think the Commodity Futures Trading Commission does?) * UPDATE: Felix Salmon has the grace to issue a mea culpa. Also, the last paragraph of my post is very poorly worded, so just to clarify, I didn't mean that Salmon and Ezra Klein are "idiot journalists." I've praised Salmon before, even suggesting that the New York Times immediately hire him as their financial reporter (after firing Gretchen Morgenson, of course, if only to post-humously vindicate Tanta). I'm sure he understands that not all derivatives are swaps, and that the entire purpose of the CFTC is to regulate certain types of derivatives. The "idiot journalists" I was referring to are the ones who wouldn't know a derivative from a dermatologist, but nevertheless describe derivatives as "unregulated financial instruments" in article after article. As you can probably imagine, that's frustrating for someone like me.


Tom Lindmark said...

Well done.

Andrew said...

A touch harsh but on point.

Anonymous said...

C'mon those idiot journalists you're complaining about have just dropped a three letter modifier: If they could just remember to only ever talk about OTC derivatives you wouldn't have anything to complain about.

Inferno said...

"I'm curious what they think the Commodity Futures Trading Commission does?"

Based on results...that's something other than an effective job.

Sorry, couldn't pass up the wag.

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