Market end-users highlight CFTC concerns
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WASHINGTON, July 24, 2013- As the Commodity Futures Trading Commission (CFTC) moves forward in its expanded role with new rules regulating the market, commodity futures market end-users explained the potential impact on their businesses to House Agriculture Committee members Wednesday.
The House Agriculture Committee's Subcommittee on General Farm Commodities and Risk Management recently held a series of hearings on reauthorizing the CFTC before it writes legislation.
The Dodd-Frank Act, signed into law in 2010, expanded the oversight of the CFTC to bring comprehensive regulation to the swaps marketplace. Additionally, in response to the customer fund losses and failures of MF Global and Peregrine Financial Group failures, CFTC proposed new rules to add stronger protections for futures customers.
Scott Cordes, President of CHS Hedging, a commodity brokerage subsidiary of CHS Inc., spoke on behalf of the National Council of Farmer Cooperatives (NCFC) during the most recent hearing.
Cordes noted that strengthening protections for customer funds is vital, but that new proposals do not take the size of futures commission merchants (FCMs) into account.
“We are concerned with several aspects of the proposed regulations, including changes around capital charges, residual interest, and establishment of risk management systems under Rule 1.11, which will be financially and operationally burdensome for smaller FCMs,” he said.
Cordes also expressed continued concerns over swaps market rules the CFTC is finalizing under the Dodd-Frank Act. The commission recently made exemptions for agricultural end-users under certain Dodd-Frank rule proposals.
“While we now know farmer cooperatives will be treated as end users and not swap dealers, there are additional questions and concerns that have arisen since many rules have been finalized and NCFC members have turned their attention to compliance,” he said.
Among his primary concerns, Cordes listed increased recordkeeping requirements that could result in higher costs for customers.
“Even as end users, significant resources must be used just to comply with the additional paperwork requirements,” he said. “In fact, a number of NCFC members have had to greatly increase the amounts they have spent on compliance in the last two years on additional staff, outside assistance, and investments in technology.”
Lance Kotschwar, Senior Compliance Attorney of Gavilon Group, LLC, spoke on behalf of the Commodity Markets Council. He said his members are concerned that CFTC's efforts to implement new swap regulatory rules “has now morphed into a crusade” of rewriting longstanding futures market regulations.
“Even more problematic is that this regulatory barrage is occurring almost entirely without consideration of real costs on commodity producers or consumers,” he said. “The additional regulatory costs that the CFTC is forcing upon end-users and commercial participants will ultimately be passed on to the consumers of commodity products…and ultimately the cost of finished agricultural and energy goods.”
Subcommittee Chairman Rep. Mike Conaway, R-Texas, said Congress outlined a clear intent to exempt end-users from the brunt of Dodd-Frank regulations, but “the past two years have been a regulatory roller coaster for them.”
“The lack of business certainty has no doubt cost many companies valuable capital and changed their strategic thinking,” he said. “Regulations should be created and exist to protect markets, not destroy them.”
National Farmers Union (NFU) President Roger Johnson issued a statement Wednesday noting his opposition to repealing market regulations. Instead of repeal, “Dodd-Frank must be fine-tuned and perfected, and regulators like the CFTC be provided the resources needed to do the job.”
The House Appropriations Committee approved a bill that includes $195 million for the Commodity Futures Trading Commission (CFTC), which is a cut of $10 million below the fiscal year 2013 enacted level and $120 million below the President's budget request.
“I find it difficult to understand why the House Agriculture Appropriations Committee would reduce funding for CFTC for Fiscal Year 2014 if they truly believe we need a marketplace that serves the interests of end-users,” Johnson added.
Subcommittee Ranking Member David Scott, D-Ga., emphasized the issue of CFTC funding during the hearings.
“The CFTC has gone from an obscure regulatory body to now one of the most powerful government agencies,” Scott said during a hearing that included testimony from CFTC commissioners this week. “The task Congress gave them was not an easy one. I want to ensure you have funding you need and the technology you need.”
Gene Guilford, on behalf of the Commodity Markets Oversight Coalition, agreed today that the House-appropriated funding is likely not enough for the CFTC. However, Andrew Soto of the American Gas Association asserted that the “amount is not as important as what they do with the funds that they're given.”
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