Vanderbilt Law Review

First Page



In the last few years, "an endless stream of exotic financial instruments conjured by Wall Street wizards" literally has taken the financial community by storm, fundamentally altering market trading practices and pitting institutions against each other in an intense competition for development of still more innovative instruments. These products--which include various types of"swaps," options, forward contracts, and price guarantees--now are being offered to and traded by every major financial institution and multinational corporation in the world, as well as by governments and individuals, and nothing indicates that the unprecedented growth of the markets for such instruments is likely to sub-side any time soon. To the contrary, the trend clearly is toward increased "product proliferation" and the addition of still more arcane and complex trading vehicles to the already dizzying array now available.

The speed with which these products have reached the markets plainly has outstripped the ability of accountants, lawyers,and regulators to keep pace with their development and to deter-mine their status under prevailing law and practices. In particular,although these products to some extent parallel existing instruments within the traditional regulatory jurisdiction of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), their new and varied features have created substantial uncertainty as to the proper locus of regulatory jurisdiction over their trading. Whether the SEC, CFTC, or other agencies have exclusive or concurrent jurisdiction with respect to these new instruments, or whether they even have jurisdiction at all, often is unclear.

This Article first will discuss the general scope of the commodities and securities industries and the respective regulatory spheres of the CFTC and SEC. This background is essential to any under-standing of the nature and regulatory status of new financial instruments, many of which are derived from more traditional types of investment and trading vehicles within the jurisdiction of these agencies, and all of which have been structured to minimize the likelihood of being encompassed within such jurisdiction. Indeed,it is virtually impossible to appreciate the potential regulatory problems associated with the offer and sale of such instruments.