US fund group: Merge SEC, CFTC into markets regulator

WASHINGTON, March 3 (Reuters) - Congress should create a
new capital markets regulator to protect investors by combining
the U.S. Securities and Exchange Commission and the Commodity
Futures Trading Commission, a group representing U.S. mutual
funds said on Tuesday.

The Investment Company Institute (ICI) said a capital
markets regulator could set legal standards for investment
advisers, broker-dealers and money market funds, as well as
address gaps in the regulation of hedge funds, derivatives and
municipal securities.

The ICI said it would release specific recommendations to
improve the functioning of money market funds by the end of
March.

Momentum is growing for U.S. financial services regulatory
reforms. The White House has called for a set of principles
outlining reforms by early April when world leaders from the
Group of 20 meet. U.S. lawmakers are expected to initially
propose legislation to make the Federal Reserve a systemic risk
regulator, followed by a comprehensive bill by August.

The ICI said it endorsed creation of a systemic risk
regulator and also urged Congress to create a separate capital
markets regulator that combines the existing SEC and CFTC.

"It is important not to simply use the current structure of
the SEC and/or the CFTC as a starting point," the mutual funds
group said. "The objective should be to build an organization
that not only is more reflective of today's markets, market
participants and investment products, but also will be flexible
enough to regulate the markets and products of tomorrow."

Merging the two agencies will be a complex process and
Congress must set a specific timetable to keep the project on
track, the ICI said.

To be effective in policing U.S. markets, a capital markets
regulator should hire staff with "significant" industry
experience and create an advisory committee with private sector
representatives, the ICI said.

Wall Street group, the Securities Industry and Financial
Markets Association, has also endorsed a merger between
securities and futures regulators. As well, SEC commissioners
Kathleen Casey and Elisse Walter support such a merger.

The ICI also endorsed the idea of creating a systemic risk
regulator to broadly monitor financial markets and risk
management. That concept is favored by some influential
lawmakers, such as Barney Frank, the Democratic chairman of the
House Financial Services Committee.

Other recommendations from the mutual fund group:

* Require hedge funds to submit nonpublic information about
their investment positions.

* Increase the transparency of counterparty risk in over-
the-counter derivatives trading.

* Consolidate the banking sector's regulatory structure.

* Authorize an optional federal charter for insurance
companies.

* Modernize the President's Working Group on Financial
Markets to improve inter-agency coordination. The working
group's members are the heads of the Treasury Department,
Federal Reserve, SEC and CFTC.

The ICI's recommendations were posted on the Web at
www.ici.org/pdf/ppr_09_reg_reform.pdf .

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(Reporting by Julie Vorman; Editing by Andre Grenon)