House panel aims to clarify CFTC rules for hedgers

By Sarah Gonzalez

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WASHINGTON, March 24, 2015-- The House Agriculture Committee is considering reauthorization of the agency that oversees swaps and futures market. During a subcommittee hearing today, Democrats and Republicans on the panel agreed that legislation for the Commodity Futures Trading Commission (CFTC) should allow end-users who are legitimate “commercial market participants” to avoid being inadvertently classified as financial entities because of their commercial activities.

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One of the jobs of CFTC is to oversee futures trading in corn, soybeans, wheat, cattle and other agricultural commodities. Through the Dodd-Frank Act, passed in 2010 in response to the financial crisis of the previous years, Congress mandated that CFTC extend the definition of position limits, which are designed to curb excessive speculation that can destabilize the market, but in a way that allows participants to engage in bona fide commercial hedging.

Douglas Christie, president of Cargill Cotton, testified on behalf of the Commodity Markets Council. He said the CFTC's multiyear effort to implement new rules regulating swaps “has now morphed into an effort to rewrite many long-standing futures market regulations.”

Christie said these regulations are being proposed without consideration of the real costs on commodity producers or consumers. “The additional regulatory costs that the CFTC would force upon end-users and commercial participants will ultimately be passed on to producers and consumers,” he said. 

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Mark Maurer, CEO of INTL FCStone Markets, said the definition of bona fide hedging “needs to be less complex and more broad” than CFTC has proposed.

Austin Scott, chairman of the Commodity Exchanges, Energy and Credit Subcommittee, noted that Congress would not be repealing Dodd-Frank nor working to weaken its protections included in the framework for regulating swap markets. But the Georgia Republican said “we will be looking to see where our action can clarify congressional intent, minimize regulatory burdens…and preserve the ability for these necessary risk management markets to serve American farmers, ranchers, and businesses.”

In the previous Congress, the House passed H.R. 4413, the Customer Protection and End User Relief Act, by voice vote, passed on the floor of the House, but the measure was not voted on in the Senate. The bill aimed to provide clarity and relief to end-users, including agriculture and energy producers, who use the derivatives market to hedge against risk.

“We need language that provides alternative recordkeeping requirements to grain elevators, farmers, agriculture counterparties and commercial market participants instead of these entities having to meet the same recordkeeping rules as swap dealers,” said David Scott, the subcommittee's ranking member, who is also from Georgia.

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