CFTC should be allowed to use settlement funds to operate during shutdown, Chilton says

By Derrick Cain

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, Oct. 9, 2013 - The Commodity Futures Trading Commission (CFTC) should be allowed to use funds collected from settlements and fines to fund itself during the government shutdown, and Congress should increase violation fines, CFTC Commissioner Bart Chilton is expected to say today in a prepared speech.

Chilton, before the National Association of Credit Managers, says that CFTC should be able to use funds from such settlements as the recent $65 million penalty on London broker ICAP to essentially help keep his agency functional. Chilton is to argue that Congress could easily allow use of about $100 million to increase the currently available 28 staff members up closer to the usual 740 staff members.

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“Instead, boom boom, out went the lights,” Chilton said in the speech. “We aren't doing the required futures swaps oversight and enforcement. It is very disappointing, and was preventable.”

Chilton said Congress, as part of a CFTC reauthorization, should increase the fine for trading violations from $140,000 to $1 million for individuals and $10 million for firms. He also said violators should face an unspecified amount of jail time.

“Fines pale compared to jail,” he said. “People need to go to jail.”

Also, Chilton said since USDA has stopped releasing reports, as a result of the shutdown, large agri-business firms have likely slowed trading.

“Traders won't trade to the extent they normally do without the reports,” Chilton said. “At least that's what I'm told. I can't verify it because we don't have the staff to do so.”

His comments come after futures market regulators and participants testified Oct. 2 before House Agriculture Committee's Subcommittee on General Farm Commodities and Risk Management that certain elements of a CFTC rulemaking proposal. CFTC adopted several rules proposed by industry regulators CME Group and the National Futures Associations in the wake the MF Global and Peregrine Financial Group failures that resulted in stolen and lost customer funds. While most agree that additional customer protections are warranted, witnesses said certain provisions of a particular CFTC proposal may harm the industry, especially its agricultural customers.

Further, both the House and Senate Agriculture Committees sent a letter Sept. 25 to the CFTC expressing concerns about the commission's Nov. 14, 2012 proposal to improve protections for futures customers.

“As you work to finalize the rule on customer protections, we ask that you carefully weigh the benefits of these regulations against both the costs to America's farmers and ranchers and the potential impact on consolidation in the [Futures Commission Merchants] industry,” senators wrote.  “In making this determination, we ask that you carefully consider the consequences to changing the manner or frequency in which “residual interest” - or capital - an FCM must hold to cover customer positions - is calculated.”

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