Stabenow to start CFTC reauthorization
February 27, 2013 | 10:46 PM
Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., announced today that she and ranking member Thad Cochran, R-Miss., will begin the process of reauthorizing the Commodity Futures Trading Commission later this year.
At a hearing at which CFTC Chairman Gary Gensler testified, Stabenow also encouraged CFTC officials to finalize rules and finish implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“Reauthorization is an opportunity to critically examine these markets and weigh policy changes that would help protect markets and additional customer protections in light of the failures at MF Global and Peregrine Financial,” Stabenow said.
Gensler testified that the CFTC has largely completed swaps market rule-writing, “with 80 percent behind us,” and plans to consider and finalize the remaining Dodd-Frank Act swaps reforms this year.
Gensler said he believes it’s critical that the CFTC put in place aggregate speculative position limits across futures and swaps on physical commodities this year, even though a federal court threw out the proposed rule.
The CFTC has appealed that court decision.
During the hearing, Gensler said he believes it is particularly important for the CFTC to protect customer funds from both a firm’s use of what should be a segregated account and from using one customer’s funds to back another customer’s account.
Several senators said there were concerns in their states about high oil prices and the speculation that may lead to them.
Sen. Mike Johanns, R-Neb., asked Gensler to explain how he could tell his constituents that position limits on trades would result in lower oil prices. Gensler replied that the important reason to maintain the position limits in oil is to assure the integrity of the market and make sure there is a “diverse set of views” in the marketplace.
Gensler also said it is important to regulate the overseas branches of U.S. firms. Otherwise, he said, jobs in the financial sector may move overseas but the risk could return to haunt Americans as it did in several cases in 2008.
Sen. Pat Roberts, R-Kan., told Gensler that he is worried about the CFTC’s proposed “residual risk” rule that would require residual interest in a customer’s account to exceed margin deficiencies.
“Based on the industry feedback I’ve seen, the CFTC’s proposal on residual risk may be the most far reaching and concerning regulation yet,” Roberts said,
“It has been described as ‘an industry-killing rule’ that ‘jeopardizes the entire existence of the model’ and is ‘likely to raise the overall level of risk to all participants in the market,’ ” Roberts said.
He noted that the majority of Kansans in the commodity markets are not large banks, but instead are small business owners, including farmers and ranchers.
“Many of these folks are in rural areas and they still meet their margin calls by check. Requiring them to post margin calls more than once a day will certainly increase their transaction costs possibly to prohibitive levels. I’m sure it is not the intention of the CFTC to force small clients out of the futures market, so how would you expect these customers to stay in the market,” he said.
Gensler responded that the CFTC had received about 125 letters from the comment period and said he would take a look at their complaints, but he also said that he does not believe firms should use some customers' money to back other customers’ accounts.
