The Committee on Capital Markets Regulation says that the principles-based regulatory system in the exchange-traded U.S. derivatives market has contributed to the market’s strength.

The CCMR, a non-partisan research organization, today announced the results of research it commissioned by Professor Henry Hu of the University of Texas Law School and Darrell Duffie of Stanford University. Based on their research, the CCMR finds that U.S. markets for exchange-traded derivatives are far more competitive globally than U.S. equity markets.

It reports that during 2007, the notional value of the year’s turnover on North American exchanges far exceeded European exchanges — approximately US$1,287 trillion here to approximately US$792 trillion in Europe. The authors also found that trading volumes at U.S. exchanges have been higher than those at European exchanges from 2001 through 2007.

In the over-the-counter market, the professors found the record is less clear. The U.S. has gradually increased its worldwide market share of trading in traditional OTC derivatives (such as currency and interest rate derivatives) but it hasn’t been as influential in the markets for categories of highly structured, higher margin derivative products, particularly structured equity derivatives.

The committee points out that OTC derivatives trading is substantially unregulated, whereas the US Commodity Futures Trading Commission does regulate exchange-traded derivative products. The CCMR said it believes, “the distinct regulatory philosophy of the CFTC has contributed to the relative robustness of the U.S. exchange-traded derivatives market (versus the declining competitiveness of its equity trading, which takes places under a rules-based regulatory regime).”

The CCMR added that it also believes that the principles-based regulatory approach of the CFTC is an important factor in maintaining U.S. competitiveness in the derivatives markets. “If the CFTC were to be subsumed within the SEC and lose its distinct regulatory philosophy, U.S. competitiveness in these markets could be significantly and adversely affected,” it maintains.