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After Gensler, U.S. grain trade hopes for gentler CFTC
January 31, 2014 / 11:11 PM / 4 years ago

After Gensler, U.S. grain trade hopes for gentler CFTC

MIAMI, Jan 31 (Reuters) - After years of battling tighter regulations in the wake of the 2008 financial crash, the U.S. grain industry is hoping a change in the regulators can bring some relief.

Agricultural executives at the annual Commodity Council Markets gathering in Florida this week pointed to coming changes in the composition of the Commodity Futures Trading Commission as a ray of hope. Three of the CFTC’s five commissioners have left and will be replaced this year.

Speculation about future reforms centered on the biggest change: the departure of CFTC Chairman Gary Gensler, the one-time Goldman Sachs swaps trader who came to embody President Barack Obama’s push for Wall Street reforms in the trillion-dollar derivatives market. Gensler’s five-year term as chairman expired at the beginning of January.

Under Gensler, as he told staff in farewell remarks on Dec. 19, the CFTC pushed through most of the new rules required by the landmark Dodd-Frank Wall Street reform law, far more than other U.S. regulators and years ahead of a similar process in Europe.

Because Gensler’s CFTC finished about 70 percent of the rules it was required to write, his successor, Timothy Massad, seemingly has little scope to push through big policy changes. Massad is a former Treasury official and Wall Street lawyer.

The U.S. grain trade - which invented the futures industry about a century ago when it needed a way to hedge price risk - has generally viewed as needless disruptions the sweeping new rules aimed at global banks and the $400 trillion global swaps market.

Among the restrictions that they would like to ease are requirements for accurate audio recording and record-keeping of phone and text messages with farmers or tighter regulations on margin deposits.

“We stopped using mobile devices for dealing with clients because we can’t record on mobile phones in an indexable, searchable way. Most commercial companies are doing the same thing,” Lance Kotschwar, compliance lawyer at Gavilon Global Ag Holdings, the big grain company, said in an interview at the CMC meeting.

“That’s a problem. Farmers would prefer to be able to text us these days. They exempted us from having to record the phone calls but not the 21st century analog to a phone call: a text message.”


James Newsome, who was CFTC chairman in 2001 and is now an industry lobbyist and consultant, said hedgers like grain handlers were hoping the transition to new CFTC commissioners could provide a chance for their concerns to be heard.

“While Chairman Gensler was sensitive to some of the concerns and issues, commercial end-user issues were not a priority. So there was no relief given,” Newsome told Reuters at the meeting. “Acting Chairman (Mark) Wetjen is very sensitive to those issues.”

Along with Gensler, CFTC Commissioner Bart Chilton, another reform-minded Democrat, has also departed, along with Jill Sommers, a Republican commissioner. Remaining are Wetjen, a Democrat appointed in 2011, and Scott O‘Malia, a Republican appointed in 2009.

Obama nominated Democrats Massad and Sharon Bowen in November and December to replace Gensler and Chilton, respectively. Confirmation hearings before the U.S. Senate Agriculture Committee have yet to be scheduled.

Both are perceived as Wall Street lawyers who are less inclined to continue Gensler’s aggressive pace of reform. Senate Democrats may have objections, especially with Obama’s August nominee to replace Sommers, Wall Street executive J. Christopher Giancarlo, as the other Republican at the commission.

“The takeaway is that the regulatory landscape is less onerous now with the new commissioners coming than we’ve had the last couple years,” Rich Feltes, a veteran grain analyst and research director at R.J. O‘Brien, said in an interview.


Critics say that Gensler’s aggressive tenure leaves plenty of scope to fine-tune certain rules that produced some unintended consequences.

“We still hear a lot of concern from the ADMs (Archer Daniels Midland Co ), the Cargills and Bunges saying we don’t know if we’re going to be able to make this work,” Sommers told Reuters. “So if they can’t do it, you really can’t expect some of the smaller guys to do it.”

“We went so quickly and we didn’t take the time to see the implications,” O‘Malia told the group at the Miami meeting. “2014 should be about fixing rules.”

He cited the new rule on recording broker-client conversations as a good example. There was not “off the shelf” technology available to keep records as CFTC staff said, O‘Malia said.

“We just didn’t do our homework,” he told the meeting.

O‘Malia also said he hopes there is an appetite to revisit a new rule covering “residual interest” that will force firms to put more capital into futures margin accounts.

The big battle to restrict the size of futures positions a trader can hold also looms in 2014. CFTC’s proposal includes a new definition of “hedging” that could permanently change how the grain industry uses futures contracts in anticipation of buying or selling grain, critics say.

The lack of agricultural background in the new CFTC commissioners may also present some obstacles for the Senate.

“When I was at the commission we had some very competent people who understood how markets work, how they developed and what commercial end users do,” said Newsome. “Unfortunately, the commission has lost a lot of that historical knowledge.”

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