The House Agriculture Committee held a hearing Feb. 10 to review the 2016 agenda for the Commodity Futures Trading Commission (CFTC). Members raised many concerns with CFTC chairman Timothy Massad, including the importance of strong futures and derivatives markets for end users, reforms to the Dodd-Frank Wall Street Reform & Consumer Protection Act and the continued need to reauthorize the commission.
House Agriculture Committee chairman Michael Conaway (R., Texas) noted that as agricultural producers have faced income drops of 55% over the past few years, it is important for CFTC staff to understand the full weight and cost of its regulations on the agricultural community as they face reduced liquidity in the marketplace as well as fewer futures commission merchants (FCMs) to serve farmers.
Massad said although CFTC doesn’t have a direct impact on prices, it is conscious of making sure businesses that need these markets can continue to use the markets effectively to hedge their routine risks. As such, CFTC has taken steps to reduce recordkeeping requirements and has amended regulations regarding the residual interest rule that affects when customers must post margin calls.
Conaway questioned whether the regulatory environment has forced FCMs out of business, and Massad responded that a number of factors are involved in this change, which goes back more than 10 years to even before the financial crisis and before the Dodd-Frank Act was put into place. He noted that it is a challenging business climate, particularly in a low-interest rate environment.
Last year, the House passed H.R. 2289, the Commodity-End User Relief Act, to reauthorize CFTC, but there was no corresponding action in the Senate. CFTC has been unauthorized since September 2013. The Senate has indicated that it plans to move forward on a CFTC reauthorization bill.
“I am pushing hard to reauthorize CFTC so that we can enact important reforms that will bring more order to the markets and more certainty for the end users who rely on them,” Conaway said. "I want to thank chairman Massad for sharing with us his plans for 2016. I look forward to working with him in the coming year."
The President’s budget, released Tuesday, called for additional funds for CFTC, which Massad welcomed. In order for the commission to fulfill its duty to oversee these vital markets in fiscal 2017, the President requested $330 million and 897 full-time equivalents (FTEs). This is an increase of $80 million and 183 FTEs over the fiscal 2016 enacted level and, effectively, amounts to the President’s fiscal 2016 budget request, with adjustments for inflation.
In a letter to Congress, Massad said the funds would allow CFTC to improve surveillance capabilities, increase its enforcement efforts and bolster its examinations of critical infrastructures in the markets, such as clearinghouses.
Last week, Senate Agriculture Committee chairman Pat Roberts (R., Kan.) called on Massad to answer for misguided accounting practices. (Click here to read the letter, dated Feb. 3.) Last month, the CFTC Office of the Inspector General released an audit report of CFTC’s financial statements showing multiple transgressions and raising serious questions about CFTC’s leasing and accounting practices.
Several members questioned Massad on the issue, which he responded was merely a technical matter of how lease term payments were listed in their accounting filings with respect to what is required under the federal appropriations practice. In a multiyear lease, CFTC listed only the current year's lease levels and disclosed future year payments in a footnote.