DERIVATIVES

New CFTC, but same old rules

The US Commodity Futures Trading Commission is back up to full strength with a new chairman and two commissioners sworn into office in June and was met quickly with a US House of Representatives’ version of the CFTC reauthorisation bill that promises major changes in day-to-day operations if passed into law.

By Rob Daly rdaly@assetinternational.com July 04, 2014 1:12 PM GMT

The US Commodity Futures Trading Commission (CFTC) is back up to full strength with a new chairman and two commissioners sworn into office in June and was met quickly with a US House of Representatives’ version of the CFTC reauthorisation bill that promises major changes in day-to-day operations if passed into law.

One key component of the Consumer Protection and End User Relief Act, would require the regulator to implement quantitative and qualitative analysis of a proposed rule, or issue, prior to putting it forth.

Such a requirement would reduce the number of arbitrary actions the CFTC could take, explained Bill O’Conner, senior agricultural counselor at boutique law and lobbying practice McLeod, Watkinson & Miller. “Requiring a more sophisticated and accurate analysis of the impact the CFTC’s action could have on the economic process would limit some things the regulator could do.”

The bill also proposes establishing an Office of Chief Economist within the CFTC, which would be responsible for generating these studies.

According to Matthew Simon, head of futures research at industry analyst firm TABB Group, the CFTC should plan to give the new organisation a substantial budget, if the bill becomes law.

“Of the 11 areas addressed in the cost-analysis portion of the bill, a lot of them will take a lot of time and energy to address,” he says. “At least the bill acknowledges that some of the items to be measured will be difficult to assess.”

The bill’s second major provision would increase commissioner involvement in the CFTC’s daily activities by requiring CFTC staff not to issue exemptive, no-action or interpretive letters unless they first provide copies to the commissioners seven days before issuance.

“Over time, the CFTC has developed a system that requires little in the way of comments or involvement that exists in other regulatory processes,” said O’Conner. “The reliance on no-action letters and staff activity, which is reported only to the chairman, could be seen as trying to avoid the involvement of the other commissioners.”

The potential workflow might create occasional problems in terms of regulatory response times, he acknowledges. “But this is the price that some people think is worth paying considering how things have evolved currently at the CFTC,” he added. 

Politics, politics and more politics

The chances of the Consumer Protection Act becoming law this year is extremely slim, according to O’Conner.

In order for bills to become laws, the US Senate needs to adopt a similar bill that is then reconciled with the House version in a joint conference committee. Once reconciled, both chambers need to pass the reconciled bill, which is then sent to the President to be signed into law or vetoed.

“To my knowledge, the [Senate Committee] has not started on its reauthorisation bill,” said O’Connor. “The majority of the Senate have not been critical of the CFTC’s operation and I’d assume its version of a reauthorisation bill would reflect and be substantially different from the House version of the bill.”

Once the Senate reconvenes from its July break on 4 August, it will only have 20 working days before retiring on 1 September in preparation for federal mid-term elections on 4 November.

“That is not a lot of working days to finish a reauthorisation bill considering they have not even started working on something that is fairly controversial,” he says.

O’Conner also doubts that Congress could or would pass a joint-reauthorisation bill during its lame duck session, the period between the election and when the new Congress convenes in January 2015. “But I have been surprised before,” he added.

If the Senate does not pass its reauthorisation bill, cannot reconcile it with the House version or it is vetoed by the executive branch, it is not the end of the world. 

“In the history of the CFTC, it is not uncommon to go awhile between Congressional reauthorisations and let the current authorisation lapse,” said O’Conner. “The CFTC does not stop functioning if its authorisation has expired. When I was working on Capitol Hill, we once went four years with an expired authorisation before putting together a new reauthorisation bill.”

The most likely outcome, he thinks, is that CFTC reauthorisation will be left to the new 114th Congress, which can re-start the legislative process with a clean slate. “You do have a fair running start by having done a bill previously, unless circumstances in the outside world have changed,” he added.