(Adds detail from bill)
By Douwe Miedema
WASHINGTON, April 7 U.S. lawmakers on Monday
launched a bill to rewrite the rules of of the Commodity Futures
Trading Commission (CFTC), giving more leeway to smaller players
in the derivative markets it oversees.
The agency became one of the most prolific reformers of Wall
Street after the financial crisis under its previous chairman,
Gary Gensler, who was frequently criticised by some in the
financial industry for his hard-nosed style and sometimes-hasty
adoption of new rules.
In a so-called reauthorization bill to fine-tune the CFTC's
mandate, the chairman and the highest-ranking Democrat on the
House Agriculture Committee drew up a list of changes to many of
the tough rules the agency has written.
"The CFTC's rulemaking process has been less than ideal. The
rulemaking process has proven confusing," the four lawmakers
launching the bill said in a statement.
The bill also directed the CFTC to finish a study into
high-frequency trading if it were adopted.
The CFTC was a little-watched overseer of agriculture and
other futures before the crisis, but the 2010 Dodd-Frank law put
it in charge of the $690 trillion swaps market, dominated by
large investment banks such as JP Morgan Chase & Co,
Citibank and Bank of America.
That has earned the agency a strong reputation among critics
of big banks, but has drawn the ire of financial industry
associations as well as from users of derivatives who fear the
new rules may ramp up their costs.
Frank Lucas, the Republican from Oklahoma who chairs the
Committee, and Collin Peterson, the ranking Democrat from
Minnesota, urged the other members of the committee to adopt the
bill at a hearing on Wednesday.
Separately, the Senate Agriculture Committee on Tuesday will
vote on the candidacy on a new CFTC chairman, and two new
The CFTC needs to be reauthorized every five years, though
it has in the past gone for several years without that stamp of
approval. The launch of the bill is the first step of what will
likely be a drawn-out process to get it through Congress.
President Barack Obama's administration is opposed to making
any changes to Dodd-Frank before it is fully implemented, and
previous attempts to tweak it have stalled.
THREE TITLES IN BILL
The bill has three titles: one to better protect customers
in futures markets, a second to reform the CFTC, and the third
to fine-tune changes in the swaps market for those clients who
use it to hedge risk, and not to speculate.
Client protection issues were at the heart of two major
collapses of futures brokers overseen by the CFTC, MF Global and
Peregrine Financial, and the agency has since tightened its
rules for the long-regulated industry.
But the lawmakers said the agency's new rules made the
market too expensive for farmers, who use futures to protect
revenue from their crops against wild swings in market prices,
and proposed making regulations easier on them.
The second title to reform the CFTC's procedure may well be
among be the bill's most explosive, and could draw criticism
from the left that the lawmakers are tethering the agency.
If enacted, it would make the agency's staff responsible to
the full five-strong Commission - which ordinarily is
majority-led Democrats or Republicans, depending on the reigning
administration - and not just its chairman.
It would also subject all the agency's decisions to a
so-called cost-benefit analysis, a frequently used tool with
which opponents of regulation have knocked out rules in court.
The agency is facing a court battle over how it applies its
rules to foreign companies and U.S. companies doing business
abroad, with the argument focusing on whether it followed proper
The so-called cross-border guidance wasn't vetted by the
Commission, but issued by staff. The bill would limit that
practice, which puts decisions outside the reach of its
politically controlled top level, to a minimum.
The bill also touched on a row between the agency and the
world's largest future exchange, the CME Group Inc.,
which last year accused it of sharing sensitive market data with
outside researchers, leading the agency to temporarily shut down
its research program for visiting academics.
The lawmakers in the bill proposed setting up a new office
of the chief economist, also answerable to the full commission,
and with tighter procedures and internal controls.
The third title would exempt so-called end-users in swaps
markets - who use swaps to hedge risk, and not to speculate -
from costly rules that require them to set aside money for each
trade they enter into, so-called margin.
It would also exempt them from certain record-keeping
requirements the CFTC has introduced to combat fraud.
Lastly, the bill would require a vote before the agency
lowers the threshold above which a company needs to register
with the agency as a so-called swap dealer, and comply with its
harshest rules, from $8 billion where it is now.
(Editing by Ken Wills, Eric Meijer and Ed Davies)