The U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC) have issued final rules that will permit trading of futures on debt indexes and debt securities.

The joint rulemaking is necessary because, under current regulations, trading futures on debt and 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.

The final rules require 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 readily susceptible to manipulation, they note.

The rules will also exclude certain debt indices from the definition of a “narrow-based security index,” by providing criteria that are specifically relevant to debt securities. Futures contracts on debt securities indices that are excluded from the definition of “narrow-based securities index” under the rules will trade subject to regulation by the CFTC. Futures on debt securities and narrow-based debt indices can be traded on futures exchanges and securities exchanges subject to joint regulation by the CFTC and SEC.

“The products that can be created under these new rules will offer additional ways to diversify and manage risk, benefiting investors and the capital formation process,” said SEC chairman Christopher Cox.