Thursday the House Agriculture Committee moved forward with its legislation to reauthorize the Commodity Futures Trade Commission while the Senate Agriculture Committee held a hearing featuring testimony from the CFTC chairman and market participants.
Last year the House was the only one to move bipartisan legislation forward to try to address what it saw as issues with the CFTC as well as ramifications of the Dodd-Frank legislation which was passed after the economic fallout. Although the Senate held hearings in 2014, it offered no formal proposal on fixes to the system.
Over the past two months the House Agriculture Committee held three separate hearing to gather testimony from end users, market service provides and the rank and file commissioners.
During a business meeting Thursday, the House Agriculture Committee advanced a bipartisan bill for CFTC reauthorization. House Agriculture Committee chairman Conaway said the bill’s reforms fall into three broad categories: protects customer margin funds, makes reforms to the operations of the Commission and requires a robust cost-benefit analysis and fixes issues with new rules for end users such as recordkeeping, registration and definitions that have been problematic for the industry.
However, this year Rep. Collin Peterson (D., Minn.) failed to sign on and support the bill, saying the facts on the ground have changed this year, particularly at the Commission where new chairman Timothy Massad has taken significant steps to relieve burdens on end users. “The Commission, and the markets they regulate, needs our support. Unfortunately I think that in some areas, the bill moves us in the wrong direction,” Peterson said. He said he would be in favor of a straight forward reauthorization.
On the Senate side, Senate Agriculture Committee chairman Pat Roberts (R., Kan.) and ranking member Debbie Stabenow (D., Mich.) both expressed a desire to advance CFTC reauthorization bill that addresses the end-user related concerns.
The term “end-user” refers to those participants who use derivatives to hedge the commercial risks associated with their normal operations, such as a grain company buying a farmer’s wheat, or an electric co-operative providing power to rural homes, Roberts explained in his opening testimony. Roberts has introduced bipartisan legislation last session, and hopes to include as part of a bipartisan reauthorization package, that eases the regulatory requirements for end users.
Bruce Barber, general manager of oilseed risk management at ADM, testified on behalf of the Commodity Markets Council. He shared that since Dodd-Frank’s passage, compliance costs have increased substantially. For ADM’s Investor Services, compliance expenditures have doubled in the last five years. He said despite Congressional attempts to keep agricultural and energy end-users out of the Dodd-Frank line-of-fire that hasn’t been the case. “Our message to you today is that five years later, we find ourselves in the middle of the fight,” Barber said.
CME chairman and president of CME Group Terry Duffy, shared that one of his top priorities for reauthorization is clarifications in the many exemptions now offered for end users. He also noted concerns over concentration of smaller futures commission merchants (FCMs) which have experienced an increased burden to comply with regulations. Small FCMs don’t have deep pockets, but 50% of hedging activity done at this level by these smaller firms, Duffy said.
