CFTC's Massad on Capitol Hill

Position limits, bona fide hedger and need for more money at CFTC posed to new CFTC commissioner.

Commissioner Timothy Massad, chairman of the Commodity Futures Trading Commission, was on Capitol Hill both Wednesday and Thursday fielding questions from House Agriculture and Appropriations Committee members.

Massad, who regularly received high praise from members during the questioning for being able to calm the rough waters created in the wake of Dodd-Frank implementation, defended the agency’s actions and reiterated the desire to help make rules workable, while also maintaining the integrity of the markets.

The House Agriculture Committee looks to propose new rules on CFTC’s authorizations this year, and likely could bring something to the floor in the next few months on the issue.

A major question posed by House Agriculture Committee members to Massad was on the Commission’s proposed position limit rule and the definition of a bona fide hedger.

Massad explained that position limits have been used within agricultural commodities for many years to limit excessive speculation and remains an “important tool in our toolkit,” he said.

Under Dodd-Frank, Congress mandated position limits be extended to other commodities.

House Agriculture Committee chairman Michael Conaway (R., Texas) explained as the Commission moves forward, its proposed rule must first explain whether or not price movements in commodities are based on reasonable market forces and can be justified by facts, and then explain how position limits will diminish, eliminate, or prevent market disruptions. 

“Big price swings – even those we’ve seen in the oil markets over the past decade – are not prima facie evidence for the appropriateness of and need for position limits,” Conaway said.

Massad noted that they’re trying to write a rule that properly implements the Congressional mandate while at the same time allowing for the use of bona fide hedging.

He added that the agency has received a lot of “good public comments” on the topic and that the CFTC is taking its “time to get this right.” He added that “reasonable people can disagree” but that his goal is to “do the best job we can to balance those concerns.

In November, the Commission proposed to modify one of its customer-protection related rules to address a concern of many in the agricultural community and many smaller customers regarding the posting of collateral. These rules had been unanimously adopted in the wake of MF Global’s insolvency and were designed to prevent a similar failure from recurring and to protect customers in the event of such a failure.

Market participants asked that the CFTC modify one aspect of the rules regarding the deadline for futures commission merchants to post “residual interest,” which, in turn, can affect when customers must post collateral. The change was that the deadline would not move to earlier than 6:00 p.m. the day of settlement without an affirmative Commission action and an opportunity for public comment.

Massad said he hopes to finalize this rule change “in the very near future.”

Another concern on reporting requirements has also been proposed, looking to exempt end-users and commodity trading advisors from certain recordkeeping requirements related to text messages and phone calls.

“This proposal is designed to make sure we do not impose undue reporting requirements on commercial end-users. The proposal also clarifies, in response to public feedback, that oral and written communications that lead to the execution of a transaction need not be linked to records identifying that transaction,” Massad said.


Massad requested a budget of $322 million. The CFTC’s spending has increased 123% since the financial crisis of 2008 and would rise to 188% under this proposal, nearly tripling the agency’s size. 

Republican leadership in the House has agreed to a number of healthy increases to support financial oversight; even though it opposed Dodd-Frank, explained Rep. Robert Aderholt (R., Ala.), chairman of the agriculture subcommittee of the appropriations committee.

Massad said enforcement, surveillance and additional data capabilities were top priorities for the agency. Already in this fiscal year fines and penalties imposed by the CFTC amount to six times that of the CFTC’s annual budget, but none of that money can be used by the agency but instead goes to the general treasury, Massad testified.

Aderholt said of the budget request, “We must examine whether CFTC has shown clear, overwhelming evidence that it is indeed helping to protect our still fragile economic situation, given this large budget request. I challenge CFTC to show where this increase in taxpayer money has reduced risk in the marketplace. How do we know that even more cops on the beat will prevent another ‘too big to fail’? It’s difficult to see a direct correlation between CFTC’s repeated increases and reduced risk.”

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