In a keynote address at the Commodity Markets Council’s State of the Industry Conference on Jan. 26, Commodity Futures Trading Commissioner J. Christopher Giancarlo stated that the CFTC must make sure that end-users are not treated as though they were the source of the financial crisis.
“Unfortunately, caught up in some of the collateral damage surrounding the Dodd-Frank reforms were the traditional commodity and energy markets and the end-users who depend on them for a variety of uses,” Giancarlo said, adding that reforms from the Dodd-Frank Act are overly burdening end-users.
“The stated purpose of the Dodd-Frank Act was to reform ‘Wall Street.’ Instead, we are burdening ‘Main Street’ by adding new compliance costs onto our farmers, grain elevators, and small futures commission merchants. Those costs will surely work their way into the everyday costs of groceries and winter heating fuel for American families, dragging down the U.S. economy,” Giancarlo said. “Imposing banking law concepts onto market participants that are not banks and that did not contribute to the financial crisis is not only confusing, but adds more risk to the system.”
In his keynote address, Giancarlo, the only Republican among the four CFTC commissioners, highlighted several policies that the CFTC proposed or issued, including proposed changes to Rule 1.35, the CFTC’s final rule defining who would be captured as a “swap dealer,” and risk management contracts that allow for an adjustment of the quantity of a delivered commodity. But the topic that received the most attention was position limits.
“I am very concerned that the effect of the CFTC’s bona fide hedging framework is to impose a federal regulatory edict in place of business judgment in the course of risk hedging activity by America’s commercial enterprises,” he said. “The CFTC must allow greater flexibility. It must encourage – not discourage – commercial enterprises to adapt to developments and advances in hedging practices. The CFTC is a markets regulator, not a prudential regulator. The CFTC has neither the authority nor the competence to substitute its regulatory dictates for the commercial judgment of America’s business owners and executives when it comes to basic risk management.
“The last thing our economy needs is the federal government dictating the conduct of everyday business risk management,” Giancarlo said.
Giancarlo concluded his remarks by pledging to be “a diligent student of market evolution and structure; a champion for market efficiency and liquidity; a protector of end-users’ rightful exemption from overly burdensome rules; and a proponent for the proper use of U.S. commodity and energy markets in durable service to the American public.”
The Commodity Markets Council is a trade association for commodity futures exchanges and their industry counterparts.