Conaway: No increase for CFTC without Dodd-Frank reforms

By Philip Brasher

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 WASHINGTON, July 29, 2015 - House Agriculture Chairman Mike Conaway pledges to fight any increase in funding for the Commodity Futures Trading Commission until Congress agrees on a new authorization law. 

The House in June passed a reauthorization bill (HR 2289) that among other things would require the CFTC to analyze the costs and benefits of all new rules, but that and other provisions face stiff resistance from Senate Democrats and the White House. 

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“Both the House and Senate have proposed level funding for the agency, and I do not believe it is appropriate to have any conversation that moves that line while so many end-user and good-government issues remain outstanding and unresolved,” Conaway, R-Texas, said at the start of a hearing Wednesday on progress in implementing the Dodd-Frank financial market reforms. 

Conaway has limited leverage to use in his attempt to persuade Democrats to agree to Dodd-Frank changes since the CFTC can continue to operate even though its authorization lapsed nearly two years ago. Democrats, however, do want to increase the agency's funding significantly to strengthen its oversight of the markets. 

The pending Senate and House appropriations bills for the CFTC would freeze its funding for fiscal 2016 at $250 million, $77 million less than President Obama requested. 

“I'm going to work as hard as I can to make sure they stay at the $250 million mark, so if money is a big deal … then maybe that's the motivation they need,” Conaway said after the hearing, referring to Democrats.

He wouldn't tell reporters how much of an increase he might support. “Until we have it reauthorized, and we know what they are supposed to do, I have no clue how much money they need to do it,” he said. 

The ranking Democrat on the Senate Agriculture Committee, Debbie Stabenow of Michigan, has singled out the House bill's cost-benefit analysis requirement as a provision she can't accept, but Conaway said that was critical to the legislation. 

Conaway argued during Wednesday's hearing that Republicans were being reasonable in seeking reforms to Dodd-Frank, and not trying to repeal the 5-year-old law. “Those days are behind us. We're now in the coping phase and trying-to-make-it-work phase. And to hold it sacrosanct and argue that any change at all somehow threatens the world is misplaced,” he said. 

One of the issues the House bill seeks to address is a long-running dispute with the European Union over its failure to recognize the U.S. derivatives regulations as equivalent to the EU's.  Terrence Duffy, executive chairman and president of CME Group Inc., said the EU position puts U.S. exchanges as a disadvantage and is already reducing liquidity in the U.S. market. That, in turn, raises hedging costs for commercial end-users and can ultimately increase commodity prices.

“You cannot recognize countries such as Singapore, Hong Kong and India … and not recognize the United States of America,” Duffy said. 

However, he applauded the chairman of the CFTC, Timothy Massad, for his efforts to persuade European leaders on the issue. “I think we're getting closer and closer” to a resolution, Duffy said. 

A major goal of the Dodd-Frank law was to improve market transparency, and that has increased significantly, industry officials said. But an expert in financial markets at the Massachusetts Institute of Technology, said the important data is still lacking. 

John Parsons, a senior lecturer at MIT's Sloan School of Management, cited as an example the CFTC's weekly swaps report. Every weekly report without fail has included the same number for the estimated value of outstanding swaps: $1.7 trillion, he said. The number has no foundation, he said. “That's not an estimate. It's a plug,” Parson he told the lawmakers. 

In his written testimony, Parsons said that “claiming to have a number when we don't provides an illusion that we are farther along on the reform than we really are."

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