House Ag approves CFTC bill over objections from Peterson, Massad
May 14, 2015
The House Agriculture Committee today approved a bill to reauthorize the Commodity Futures Trading Commission and address concerns of end-users of derivatives, but not without dissent.
End-users of financial futures – including country elevators and farm co-ops – have said that requirements under the Dodd-Frank financial services reform bill make it more difficult and expensive to use these financial instruments.
The committee approved the bill by voice vote, but there were some dissenting Democratic members, including House Agriculture Committee ranking member Collin Peterson, D-Minn., who voted against it.
Reps. Austin Scott, R-Ga., and David Scott, D-Ga., chairman and ranking member on the House Agriculture Commodity Exchanges, Energy and Credit Subcommittee, supported the bill.
CFTC Chairman Timothy Massad also wrote to House Agriculture Committee Chairman Michael Conaway, R-Texas, on Wednesday to state that he was opposed to the bill as written.
Conaway said in an opening statement that the Commodity End User-Relief Act bill "codifies new practices instituted by the CFTC and other market regulators to protect customer margin, it includes a strong cost-benefit analysis measure to produce better rules, and it provides relief for end-users from burdensome requirements currently in place. The derivatives market exists to help businesses manage their risk, and this bill will bring positive reforms to help these markets run efficiently and effectively for market participants, financial intermediaries, and end-users alike."
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Peterson told reporters after the hearing that his concern about the House bill is limited because "the bill won't look like this after conference" with the Senate.
Peterson, who chaired the House Agriculture Committee when the Dodd-Frank bill was written in reaction to the problems in the futures industry that triggered the 2008 financial crisis, said he could not support the bill.
"Because of our work on Title Seven of Dodd-Frank, the derivatives markets as a whole are now much safer than they once were," Peterson said. "The commission – and the markets they regulate – need our support. Unfortunately, I think that in some areas, the bill moves us in the wrong direction."
Some of the provisions, Peterson said, "would actually make it more difficult for the commission to function and only slow down the process of providing regulatory relief to market participants."
The bill gives the CFTC direction in its relations with regulators in other countries, but Peterson said, "I'm encouraged by Chairman Massad's negotiations with foreign regulators to achieve a cross-border regulatory regime. Unfortunately, the cross border section in the bill presents the very real danger of cutting the chairman off at the knees, by requiring rulemaking promising substituted compliance to foreign companies in the midst of these ongoing negotiations."
In his letter to Conaway, Massad said that the bill "limits the agency's ability to respond quickly to both market events and market participants."
Language requiring the CFTC to consider costs and benefits in rulemaking "is likely to lead to more lawsuits instead of policy grounded in data-driven analysis." (The committee today adopted an amendment that would limit companies' ability to take the CFTC to court over cost-benefit analyses.)
Massad also said that he hoped the commission's actions in the last year had resolved end-user concerns and that codifying end-user measures "creates new problems in the marketplace by creating unintended loopholes and uncertainties and by removing flexibility necessary in a rapidly changing market."
After today's hearing, Conaway issued the following statement in reaction to Massad's letter:
"Chairman Massad's remarks are not a new revelation. There is no news when a Washington regulator prefers to be left alone and operate without direction or oversight. Unfortunately, he doesn't have that luxury: The Committee on Agriculture has jurisdiction over the CFTC, and our job is to grant and circumscribe the CFTC's authority. I have some important disagreements with how his commission operates, not excluding the manner of how Chairman Massad chose to express his concerns to the committee, but also the rules they write that impact the constituents I and the other members of the House Agriculture Committee serve."
–The Hagstrom Report