COMMODITY TRADERS TO MEET AMID DEBATE.

Byline: Cliff Edwards Associated Press

The nation's commodity trading industry, losing business to less-regulated foreign marketplaces, gathers here this week amid a raging debate on whether to relax government oversight of exchanges where billions of dollars change hands each year.

The Commodity Futures Trading Commission warns that the last thing the nation's futures exchanges need is less oversight at a time when rogue traders are roiling global markets and losing billions in unauthorized trades. The CFTC, the federal agency created in 1974 to regulate the nation's commodity and futures markets, argues bills being drafted in the Senate and House would essentially take the teeth out of its enforcement powers.

But executives at the Chicago Board of Trade, the Chicago Mercantile Exchange and smaller exchanges say the industry would thrive under less federal constraints and oversight.

And they have powerful allies, including Alan Greenspan, chairman of the Federal Reserve. Greenspan, at a conference on financial markets last month, boosted chances for change by speaking out in support of legislation currently being considered by a Senate committee.

That legislation would divide trading into two tiers: one for sophisticated investors that would be virtually unregulated and one for the retail market.

The heart of the issue is the exchanges' long-held complaint that they are disadvantaged by tough regulations while competing with less-regulated foreign exchanges. They also have been kept out of the lucrative and virtually unregulated over-the-counter market in swaps and derivatives, which allow firms to hedge against swings in the price of securities or fluctuations in interest or currency exchange rates.

The U.S. exchanges say their share of futures and options trading worldwide has fallen to 43 percent from 88 percent since 1987, while less-regulated overseas markets have seen explosive growth. Of particular concern is the drop in financial futures markets, which account for the lion's share of an exchange's income. The Board of Trade, for example, says its Treasury futures contract has risen 54 percent in the past five years, while the over-the-counter market has grown fivefold.

Brooksley Born, chairwoman of the CFTC, is the keynote speaker Thursday and is expected to argue forcefully that eliminating federal power could lead to manipulation, fraud, financial instability and possible collapse.

Chicago Merc Chairman Jack Sandner proclaimed ``one size of regulations does not fit all,'' while Board of Trade chairman Patrick Arbor called the Senate bill ``real progress toward reforming outdated federal laws and policies.''