Comment Text:
NPR's February 10, 2011 story on the oversight investigations into derivatives outlines how the CFTC is struggling to determine who would manage a derivatives exchange.[1] The companies and lobbyists that stand to gain billions of dollars from a derivatives exchange are quick to volunteer to run such an organization. Their conflicts of interest must be so well-understood that they can go unstated.
The CFTC does have another option. The use of government-owned, contractor-operated (GOCO) organizations has worked in other aspects of public service, such as defense and energy research. The government has also turned to non-profit organizations for certain federally-funded activities.
The CFTC should consider these options for the management and operation of a derivatives exchange. Ideally, it would pick a non-profit model, with any excess income returned to the federal government, just as the Federal Reserve does. The leaders for this non-profit should be drawn from Department of Treasury organizations like the FDIC, CFTC, IRS, and OTS to ensure the exchange never forgets its fiduciary responsibility to prevent systemic risk.
Notes:
[1] http://www.npr.org/blogs/money/2011/02/10/133660842/forged-letters-and-other-stories-from-the-trenches-of-financial-regulation
