The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission are jointly proposing rules that will permit trading of futures on debt indices.

The joint rulemaking is necessary because, under current regulations, trading futures on debt indices is essentially forbidden. The federal law that governs the subject, however, specifically gives joint rulemaking authority to the two agencies to permit the trading of futures on indices composed of debt securities.

Under the proposed rules, futures contracts on debt indices would trade on futures exchanges subject to regulation by the CFTC. Futures on debt securities could be traded on futures exchanges and securities exchanges, subject to CFTC and SEC regulation.

To achieve the aims of investor protection and market integrity, the proposed rules provide that a future on a debt security index not subject to SEC regulation must be broad-based. This requirement is designed to ensure that the securities making up the index are not susceptible to manipulation. The rules will clarify the definition of a “narrow-based security index,” providing criteria that are specifically relevant to debt securities.

“The new products that undoubtedly will be created under this proposal can provide additional ways to diversify and manage risk,” said SEC chairman Christopher Cox. “That’s good both for capital formation and for the protection of investors.”

CFTC chairman Reuben Jeffery noted: “I am very pleased today to announce the results of our cooperative efforts with the SEC on this long-awaited proposal to permit the trading of futures on domestic and foreign debt security indices. The new definition for broad-based debt indices will benefit both markets and market participants by making available a wider array of financial products for trading.”

Jeffery also reaffirmed the CFTC’s commitment to work collaboratively with its SEC colleagues on foreign equity index and margining issues that have been raised during the CFTC Reauthorization process.

Comments on the proposed rules should be received by the respective commissions within 30 days of their publication in the Federal Register. The two commissions expect to adopt final rules by June 30.