The Commodity Futures Trading Commission (CFTC) is increasingly becoming the focal point of some lawmakers' Dodd-Frank related angst. CFTC Chairman Gary Gensler discussed his agency's 2012 agenda during a Feb. 29 hearing before the U.S. House Agriculture Committee. Republicans questioned many CFTC initiatives, including the agency's effort to define the range of swaps participants for the purposes of the commission's regulations. Democrats also pressured Gensler to implement the CFTC's controversial Dodd-Frank position limits rule.
Committee Chairman Frank Lucas, R-Okla., began by calling into question Gensler's response to the collapse of bankrupt brokerage MF Global. He complained that the CFTC failed to conduct a thorough analysis of the costs and benefits associated with its Dodd-Frank rulemakings or clarify the extraterritorial scope of those rules. Lucas also expressed concern regarding the agency's effort to craft key Dodd-Frank rules that will define important terms such as “swap” and “major swap participant.”
The CFTC must promulgate rules defining swaps products and participants in conjunction with the Securities and Exchange Commission (SEC). The CFTC scheduled a vote to finalize its entity definition rules in February; however, that vote was later put on hold.
Dodd-Frank included provisions intended to ensure that end-users are not subject to the act's mandatory clearing requirements. Lucas said he remains concerned that the CFTC's entity definition rule will “cast a wide net that could needlessly catch end-users.”
“For months we have been assured by chairman Gensler that the swap dealer definition would not result in the unnecessary regulation of the end-users which Congress never intended to fall within the swap dealer category,” Lucas noted. “However, as the commission neared completion of the rule last week, end-users were frantically seeking clarification that their hedging activities would not be classified as swap dealing.”
Lucas asked Gensler why the impending vote on a final rule caused such a disturbance among industry participants.
Gensler said his agency has listened to the public's concerns, adding that it's common for industry participants to restate their positions immediately before the commission prepares to vote on a final rule. He also indicated that some of the concern regarding the end-user exemption has come from market participants routinely involved in market making and the hedging of risk for other market participants. He said end-users who are hedging for commercial purposes are not likely to be covered by the swap dealer definition.
Committee ranking member Collin Peterson, D-Minn., said some industry participants devoted significant effort in an attempt to have themselves carved out of the swap dealer definition.
“From what I can tell ”¦ if you are actually hedging; you're an actual end-user; that's not going to trigger [the] swap dealer designation, but there are certain firms in the electricity area and in the energy, gas and oil area that are actually dealers,” Peterson said. “I hope that we get more of this out into the public so people can understand what's going on.”
Rep. Randy Hultgren, R-Ill., said the definitional rules' delay has resulted in regulatory uncertainty, especially for rural electric providers and farm cooperatives. Gensler said he hopes the CFTC and SEC can finalize its entity definition rules sometime in the month of March.
While Democrats on the committee generally supported the CFTC's recent actions, Rep. Joe Courtney, D-Conn., pressured Gensler to implement the agency's controversial new position limits rule under the Dodd-Frank Act. The rule, which is intended to limit the effects of speculation on the price of oil, natural gas and other physical commodities, is the target of a lawsuit launched by the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association.
“I've been reading the pleadings in the court challenge that somehow suggest that you exceeded your discretion by imposing these position limits last October ”“”“ it is ludicrous,” Courtney said.
Courtney told Gensler that Congress clearly wanted position limits when it enacted Dodd-Frank, and he said his constituents are tired of waiting for the CFTC to take action.
“Frankly, there are a lot of folks in my state who are upset with the fact that it took so long for the commission to extract a rule,” he said. “I'm not pointing the finger at you. I realize that you had a juggling act in terms of trying to line up three votes on that commission and you did that. But obviously we are five months out since [the] vote occurred and yet there is still no rule in place.”
Gensler noted that the CFTC must finalize its swaps and entity definition rules before the position limits rule can take effect. The commission must also complete a year's worth of data collection.
“Time is the enemy here in terms of trying to get a market that is transparent; that has some connection to supply and demand,” Courtney said. “It's just critical that we get these rules in place.”
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