THE House agriculture subcommittee on general farm commodities and risk management met twice last week to hear testimony related to reauthorization of the Commodity Futures Trading Commission (CFTC).
Congress is in the process of reauthorizing the regulatory agency, including writing new rules and regulations now required of CFTC under the Dodd-Frank Wall Street Financial Reform & Consumer Protection Act.
Subcommittee members echoed concerns that had also been expressed in a Senate Agriculture Committee hearing on the topic the week prior, urging that new rules not burden businesses.
At the hearing last Tuesday, the panel heard from CFTC commissioners Scott O'Malia and Mark Wetjen. Then, on Wednesday, the panel heard from a variety of end users representing trade associations and companies.
Rep. Michael Conaway (R., Texas), chairman of the House subcommittee on general farm commodities and risk management, expressed concerns of the impact delays and last-minute no-action letters are having on how market participants manage their businesses.
"The lack of business certainty has no doubt cost many companies valuable capital and changed their strategic thinking. Regulations should be created and exist to protect markets, not destroy them," he said.
O'Malia testified that CFTC's implementation of Dodd-Frank rules has made it "difficult for commercial end users to comply with CFTC regulations and made hedging more complicated and expensive."
He went on to talk about how CFTC repeatedly ignored the congressional intent of excluding commercial end users in the swap dealer provisions.
Conaway called the past two years a roller-coaster ride for these end users.
O'Malia also explained that by working with the National Futures Assn. and CME Group, he was able to implement automated systems linking futures clearing merchants and banks to monitor daily balances to increase oversight following the MF Global and Peregrine Financial bankruptcies. He said this was a prime example of having "industry solutions that protect customers and augment the commission's oversight ability."
Lance Kotschwar, senior compliance attorney for The Gavilon Group, testified on behalf of the Commodity Markets Council (CMC) that at this critical juncture in the Dodd-Frank rule writing and implementation, "CMC members are concerned that the CFTC's efforts to implement new swap regulatory rules has now morphed into a crusade of rewriting many long-standing futures market regulations that Congress, via Dodd-Frank, never contemplated.
"Even more problematic is that this regulatory barrage is occurring almost entirely without consideration of real costs on commodity producers or consumers. The additional regulatory costs that the CFTC is forcing upon end users and commercial participants will ultimately be passed on to the consumers of commodity products and will also reduce market liquidity, further raising the costs of risk management and, ultimately, the cost of finished agricultural and energy goods," he said.
Kotschwar added that CMC strongly believes that "CFTC's current trend toward very prescriptive changes to futures market regulation will hinder rather than improve our economy's ability to manage commodity market risks."
As in the Senate hearing, House members also addressed funding for CFTC, which is facing new budgetary pressures under the additional regulations. Subcommittee chair Rep. David Scott (D., Ga.) asked if end users supported the lower House-appropriated level for CFTC of $205 million.
Scott Cordes, president of CHS Hedging, testifying on behalf of the National Council of Farmer Cooperatives, said he feels that the current spending level has been sufficient, and when needed, the agency has been accessible to his industry. He reiterated that how those funds are prioritized is what matters.
Gene Guilford, testifying on behalf of the Commodity Markets Oversight Coalition, countered that the CFTC staff is 9% larger than it was 20 years ago, but it deals with transactions that have increased in nominal value by 30 times the levels of two decades ago, so he does not see the current funding level as sufficient.
Many Republicans have called for a repeal of Dodd-Frank.
National Farmers Union president Roger Johnson said in a statement after the hearing that his group strongly disagrees with some of the members' arguments that in order to help markets work better, the Dodd-Frank act and many other market regulations should be repealed.
"Instead, Dodd-Frank must be fine-tuned and perfected, and regulators like the CFTC (must) be provided the resources needed to do the job," Johnson said.