House committee endorses broader CFTC oversight

WASHINGTON (Reuters) - The government agency that oversees futures trading needs more authority to prevent fraud and to oversee the retail foreign exchange industry, the House Agriculture Committee said on Wednesday before it approved a bill to increase the agency's oversight powers.

The committee, which oversees commodity trading, passed legislation that would require retail foreign exchange dealers to register with the Commodity Futures Trading Commission and require them to abide by the same anti-fraud rules as traditional future dealers.

Under the bill, CTFC would be given increased power to oversee certain foreign currency transactions. It would, in essence, reverse an appeals court ruling in 2004 that said these so-called "futures" transactions were in fact "spot sales" and outside of CFTC's jurisdiction.

Lawmakers also moved forward on toughening criminal and civil penalties for traders who unlawfully manipulate the market. Fines would increase from $100,000 or triple the monetary gain to $1,000,000 or triple the monetary gain.

"This legislation strikes an important balance," said Rep. Jerry Moran, a Kansas Republican. It focuses "on growth and yet gives the CFTC tools necessary to investigate and discipline those who choose to manipulate markets."

The bill was part of a reauthorization of the CFTC. Congress last reauthorized the agency in 2000.

The legislation also increases the CFTC's oversight of some trading activity on electronic trading facilities known as Exempt Commercial Markets. These over-the-counter markets trade nonagricultural commodities such as energy products and metals, largely on a one-to-one basis between two registered groups.

This measure would include large trader position reporting rules comparable to those that now apply to contracts traded on regulated exchanges. It would also establish self-regulatory oversight to detect and prevent manipulation, price distortion, and other disruptions, and create emergency authority to stop manipulations and disruptions.

A committee spokesman said it is uncertain what will happen to the CFTC bill next, noting that it could go to the floor as a stand-alone bill or be added to legislation such as the farm bill.

(Reporting by Christopher Doering; editing by Jim Marshall)