WASHINGTON, July 27, 2017 - A trio of nominees to the Commodity Futures Trading Commission today pledged to protect the ability of farmers and ranchers to hedge against volatility in the commodity markets.
The nominees, who would form a majority of the five-member commission if they are confirmed by the Senate, also indicated to the Senate Agriculture Committee that they are open to seeking an increase in the agency’s staff, an issue that has sharply divided Republicans and Democrats in Congress.
The nominees include two Republicans, former Senate Agriculture Committee aide Dawn DeBerry Stump, who grew up on a West Texas farm, and Brian Quintenz, a former fund manager and a one-time House GOP adviser. The third nominee, Russ Behnam, has served as counsel to Sen. Debbie Stabenow, the ranking Democrat on the Agriculture Committee.
The committee could vote on the nominations as soon as next week, but the full Senate may not act on on the nominations until after the August recess. Chris Giancarlo’s nomination to chair the commission also is pending in the Senate. Giancarlo is now serving as acting chairman. The commission’s Democratic nominee, Sharon Y. Bowen, has said she plans to step down.
Senate Agriculture Chairman Pat Roberts, R-Kan., said all three nominees “have a proper appreciation of the turmoil the 2008 financial crisis imposed and the comprehensive congressional response which followed.” Stabenow called the nominees a “breath of fresh air.”
As an aide to the committee, Stump helped draft Title 7 of the 2009 Dodd-Frank law that deals with the CFTC, and Behnam has been assisting the committee with the law’s implementation over the past six years, Roberts said.
Quintenz, who was originally nominated for the CFTC last year but never received a Senate vote, was working in the financial industry at the time of the economic crisis that led to the enactment of Dodd-Frank. He founded and was managing principal at Saeculum Capital Management until last year.
Each of the nominees assured the committee that they understand the importance of the futures market to agriculture.
“Ultimately these markets need to work for farmers and ranchers that depend upon” them, said Quintenz.
Behnam said, “We have small, large farmers and ranchers, manufacturers and other end-users” who use the futures market. “The priority of the commission must be customer protection.”
Republicans long resisted the Obama administration’s attempts to increase the CFTC’s budget, but all three nominees indicated they were open to supporting Giancarlo’s proposal to increase the commission staff.
Giancarlo went around the White House and submitted a proposal to Congress directly that would increase the CFTC budget in fiscal 2018 by $31.5 million to $281.5 million. The additional money would go to hiring more economists and examiners and upgrading the agency’s technology.
Stump told Sen. John Thune, R-S.D., that Giancarlo “has done a remarkable job of evaluating the resource needs… He has identified some increased efficiencies as well ask some some gaps that need to be filled.”
Quintenz said he looks forward to working with Giancarlo on the budget and resource needs.
Behnam said, “Given the oversight responsibility increase that the commission received through Title 7 relative to the funding increases it has received since the financial crisis, I would think that the funding increase is important to ensure and preserve market integrity.”
All three nominees assured the committee they were committed to finishing a position-limits rule required by Dodd-Frank. But the trio appeared divided, as Giancarlo and Bowen currently are, on whether the threshold for being regulated as a swaps dealer should be lowered from $8 billion to $3 billion.
Behnam, the Democratic nominee, said he supports the lower threshold, which is scheduled to take effect in December 2018.
But Quintenz echoed Giancarlo’s concern that the $3 billion exemption limit would force utilities, refiners and agribusiness companies to cut back on their trading to make sure they stay under that threshold.
The lower threshold could “drive participants out of the market or force them to reduce their activity because of the costs imposed upon them,” said Quintenz.
Thune raised concerns that cattle producers have raised about market volatility. The nominees promised to keep an eye on the issue.
The CFTC found no irregularities in high frequency cattle trades in 2015 and 2016, but Quintenz said the issues raised by cattle producers were "indicative of some kind of problem with the market, whether it be contract design, market participants or whether it be supply and demand imbalances. It’s important for the commission to answer those questions. I know the commission has bene looking into this and has been working with all the stakeholders, including the CME, and ranchers that have exposure to this."
The National Cattlemen's Beef Association complained to the CME Group in early 2016 that volatility in the futures markets "has made them a tool which is more of a liability than a benefit."
Giancarlo has praised the CME for altering its live cattle contract to alleviate capacity constraints that are affecting the contract after the last trade date (LTD). The commission is assisting the Government Accountability Office in an ongoing investigation of meatpacker practices in the cattle market in 2015.
Some 25 farm groups, including the American Farm Bureau Federation and National Farmers Union, wrote Senate Majority Leader Mitch McConnell, R-Ky., ahead of Thursday's hearing urging quick confirmation of all three nominees. The groups specifically praised Stump and Behnam for their ag backgrounds.
“Now more than ever it is important to have strong advocates for agriculture at the CFTC. As CFTC’s oversight responsibility and regulatory footprint has grown, the agricultural futures markets remain as vital and integral to our industry as they were before the financial innovation that led us to today’s derivatives markets.” the letter said.