The Senate Agriculture Committee made a party-line vote of 11-9 to advance chairman Pat Roberts' (R., Kan.) mark to reauthorize the Commodity Futures Trading Commission (CFTC).
A coalition of agricultural groups supported the mark, although Democrats criticized the bill, saying it will hamstring the agency by limiting its funding and meddling with reforms that were put in place to protect against another financial meltdown.
The chairman's mark addresses many concerns of end users, including farmers and ranchers who use derivatives and futures contracts to manage risks. These end users are not speculators or risk-takers, yet they withstand the worst consequences stemming from the implementation of recent regulations, Roberts said in a statement.
After the Dodd-Frank Wall Street Reform & Consumer Protection Act became law and CFTC began writing new rules, "it was, in fact, that farmer, that rancher, that county grain elevator manager who felt the heavy hand of overregulation come down on them,” Roberts said in his opening statement. “It has been eight years since the crisis, six years since the bill was passed and yet there has been no action from this committee to address the impacts on end users, farmers and ranchers from Dodd-Frank regulation. Today, that changes.”
Roberts noted ahead of the vote that the legislation has widespread support from those in the area that will benefit from real CFTC reforms the most: rural America, notably the National Grain & Feed Assn. (NGFA), American Feed Industry Assn., American Farm Bureau Federation, National Council of Farmer Cooperatives as well as national commodity groups and state feed and agribusiness associations. Roberts added that additional stakeholder support is pouring in daily.
The agricultural groups voiced support for Roberts' "Commodity End-User Relief Act," which includes the following provisions:
- Confirms the intent of the Dodd-Frank law and historical practice at CFTC that anticipatory hedging qualifies as bona fide hedging activity, a hugely important matter for maintaining the availability and use of risk management tools for producers and traditional hedgers.
- Codifies important customer protections to help prevent another MF Global bankruptcy situation.
- Provides a permanent solution to the "residual interest" problem — a regulation initially proposed by CFTC but subsequently withdrawn — that would have put more customer funds at risk by forcing pre-margining of hedge accounts held by futures commission merchants. Such a rule also potentially would have driven farmers, ranchers and small hedgers out of futures markets by imposing higher capital requirements to maintain hedge accounts.
- Gives the force of law to relief from burdensome and technologically infeasible recordkeeping requirements in commodity markets.
- Requires CFTC to conduct a study and issue a rule before changing the de minimis threshold for swap dealer registration to make sure that doing so would not harm market liquidity and end user access to markets.
NGFA senior vice president of marketing Todd Kemp said the bill "accomplishes several important clarifications and tweaks that will help ensure that U.S. farmers, ranchers and agribusiness hedgers maintain access to the risk management tools they need."
However, Senate Agriculture Committee ranking member Sen. Debbie Stabenow (D., Mich.) said the bill doesn't address anything that isn't already being tackled through the CFTC rule-making process. Rather, she criticized the bill for not dealing with the systematic issues that relate to banks and large entities deeply involved in the swaps market.
She was united in her opposition with fellow Democrats on the bill, notably because Republicans failed to provide CFTC with the resources it needs to oversee a swaps market worth $300 trillion.
Stabenow introduced an amendment (which failed by a 9-10 vote) that would establish a fee for services provided at the commission — “something that President (Ronald) Reagan first proposed and one that every Republican and Democratic administration since then has supported,” she said.
“This fee-for-service will not be placed on our farmers and ranchers; it will be on services provided to the big banks and Wall Street,” Stabenow explained.
During her opening remarks, Stabenow said between 2009 and 2010, after the Dodd-Frank law was enacted, CFTC went from being responsible for markets worth $27 trillion to markets worth $320 trillion — a 1,185% increase. At the same time, CFTC's resources to do the job went up only about 15%.
During the markup, Republicans said it should be up to appropriators, not the agriculture committee, to determine funding levels for CFTC.
NGFA commended the Senate committee for rejecting Stabenow's amendment, which would have imposed user fees on some futures market participants, with the result being increasing costs to producers and other agricultural hedgers that use futures markets.
Stabenow said as the bill currently stands, it cannot pass on the full Senate floor. She said she “would be surprised to use appropriations strategy to get it passed.”
House Agriculture Committee chairman Michael Conaway (R., Texas) welcomed the Senate action. Last summer, the House passed H.R. 2289, the Commodity End-User Relief Act, to reauthorize CFTC, which has gone unauthorized since September 2013.
“The CFTC remains the only unauthorized program under the House Agriculture Committee's jurisdiction. I am glad to see the Senate act on this important issue to bring relief to end users and ensure the markets work efficiently and effectively for all market participants, especially during this recent collapse in commodity prices," Conaway said.