Market Watch : SEC Seems to Have the Upper Hand in War of Regulators : Securities: Many business and political leaders think that the CFTC is ill-equipped to monitor stock index futures activity.

The 8-year-old turf war between securities and commodities regulators is heating up.And it looks like the commodities industry is about to be outgunned.

Backed by a broad-based coalition of business and political leaders, securities experts are pushing for changes in the law that would give the Securities and Exchange Commission more authority over stock index futures contracts. The Commodity Futures Trading Commission, which currently has jurisdiction over all futures contracts, is fighting to retain its authority.

Last week, Treasury Secretary Nicholas F. Brady publicly advocated the changes. And a bill giving the SEC new powers cleared the House Energy and Commerce Committee.

But there’s more than jurisdiction at stake.

Industry experts maintain that this is a battle about greed, market manipulation and fair play. And some believe that it could influence the future of the U.S. securities markets.

“It is a crucial issue,” said Gerald Beirne, a New York stockbroker who has testified at congressional hearings on the stock and commodities markets.

Beirne maintains that the current system of regulating stock index futures and stocks separately leaves tremendous potential for market manipulation by sophisticated and well-heeled investors. That manipulation worsens stock price volatility, which, in turn, scares away more small investors. Ultimately, if abuses and potential abuses are not addressed, investors may lose confidence in the fairness of the markets and stop investing, Beirne added. That could make it difficult for companies to raise capital, hurting the U.S. economy as a whole.

However, commodities regulators maintain that this is nothing more than a raid by a power-hungry agency that has been losing ground in recent years. Since the 1987 market crash, trading volume on the nation’s stock exchanges has slumped. And the SEC gets part of its budget from fees based on trading activity.

Meanwhile, volume on the 13 commodities exchanges has been climbing. A CFTC spokesman last week questioned whether the SEC is really concerned about potential trading abuses or simply trying to get its fingers in the commodities purse.

The issue of who should regulate stock index futures is not new. In fact, it surfaced the moment the futures exchanges began to offer contracts based on the trading price of “baskets” of stocks, such as the Standard & Poor’s 500-stock index, in the early 1980s.

The CFTC, which traditionally watched over the trading of futures contracts on farm goods, initially won jurisdiction over financial futures. But securities executives have been questioning the decision nearly ever since.

Proponents of SEC oversight point to the differences between corporate stock and livestock. The price of one is relatively easy for traders to manipulate, while the price of farm goods is affected by hard-to-manipulate factors such as the weather.

Supporters of the CFTC base their argument on the difference between stocks and futures. Stock is used as an investment, they say, while futures are a form of insurance policy, protecting the owner from unforeseen events such as crop failures and bad earnings reports.

Both regulators privately maintain that the other is ineffective and in the pocket of the industries that it watches over.

But increasing volatility in the stock market has marshaled support for change. Industry experts believe that the futures market has greatly contributed to the volatility because of practices such as index arbitrage, which exploits price differences between stock index futures and the underlying stocks.

“There is a lot of momentum for change,” said a knowledgeable congressional staffer. “The jurisdictional issues should be decided this year.”