Commodity End-User Relief Act
Floor Speech
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Mr. Chairman, I yield myself such time as I may consume.
I rise today in support of H.R. 2289, the Commodity End-User Relief Act.
I want to start by thanking Chairman Austin Scott and Ranking Member David Scott of the Commodity Exchanges, Energy, and Credit Subcommittee. They have done a tremendous job over the past few months working on these issues. They have held three hearings on reauthorization, listening to testimony from end users, financial intermediaries, and even the commissioners themselves. Without their work, we would not have been able to move this bill today.
H.R. 2289, the Commodity End-User Relief Act, does exactly what the name suggests: it provides relief from unnecessary red tape for the businesses that ``make things'' in our country.
End users are the businesses that provide Americans with food, clothing, transportation, electricity, heat, and much, much more. Companies that produce, consume, and transport the commodities that make modern life possible use futures and swaps markets to reduce the uncertainties that their businesses face. Farmers hedge their crops in the spring so that they know what price they will get paid in the fall. Utilities hedge the price of energy so they can charge customers at a steady rate. Manufacturers hedge the cost of steel, energy, and other inputs to lock in prices as they work to fill their orders.
The fact is, no end user played any part in the financial crisis of 2008, and no end user poses a systemic risk to U.S. derivatives markets. Yet, as the Agriculture Committee heard in countless hours of testimony, it is now more difficult and more expensive for farmers, ranchers, processors, manufacturers, merchandisers, and other end users to manage their risks than it was 5 years ago.
To address their concerns, H.R. 2289 makes targeted reforms to the Commodity Exchange Act that fall into three broad categories: consumer protections, commission reforms, and end-user relief.
Title I of the bill protects customers and the margin funds they deposit at their FCMs by codifying critical changes made in the wake of the collapse and bankruptcy of both MF Global and Peregrine Financial.
Title II makes meaningful reforms to the operations of the Commission to improve the agency's deliberative process. In doing so, it also requires the Commission to conduct more robust cost-benefit analysis to help get future rulemakings right the first time and to avoid the endless cycle of re-proposing and delaying unworkable rules.
Finally, title III fixes numerous problems faced directly by end users who rely on derivatives markets. From unnecessary recordkeeping burdens, to improperly categorizing physical transactions as swaps, to narrowing the bona fide hedge definition, CFTC rules have discouraged exactly the kind of prudent risk management activities Congress intended to protect with the end-users exemptions in the Dodd-Frank bill.
These regulatory burdens present challenges to American businesses and will cost them significant capital to comply with, unless Congress acts to provide the relief.
Title VII of Dodd-Frank sought to require that most swaps, one, be executed on an electronic exchange to ensure price transparency; two, be subject to initial and variation margin and central clearing through the lifetime of the transaction, to ensure performance on the obligation for counterparties; and, last, to be reported to a central repository to ensure that regulators have an accurate picture of the entire marketplace at any one point in time.
H.R. 2289 does not roll back a single core tenet of title VII. It does not change the execution, clearing, margining, and reporting framework set up by the act. In fact, not a single witness who appeared before the House Committee on Agriculture ever asked us to upend these principles. But what they did ask for were fixes to portions of the statute that didn't work as intended, to provide more flexibility in complying with the rules when they impaired end users' ability to hedge, and to bring more certainty to the Commission and how it operates. That is exactly what H.R. 2289 provides.
Similar to the CFTC reauthorization bill passed by the House with overwhelming bipartisan support last Congress, the Commodity End-User Relief Act makes narrowly targeted changes to the Commodity Exchange Act. This legislation offers meaningful improvements for market participants without undermining the basic tenets of title VII. I am proud that the committee has again put together a bill that has earned the bipartisan support of our members because it provides the right relief to the right people.
Mr. Chairman, I urge support of the Commodity End-User Relief Act.
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Mr. Chairman, I yield myself 1 minute.
I remind my colleagues that the cost-benefit analysis provisions that are in this bill are remarkably similar to the bill last year, which garnered overwhelming support, including support out of the Agriculture Committee itself. Cost-benefit analysis is an important tool for any regulatory agency to have at its disposal to be able to use. This agency did not use the cost-benefit analysis rule that was in place because it was so weak and toothless that they just basically gave lip service to it, according to their own IG.
The cost-benefit analysis in this bill mirrors in most instances President Obama's executive order from January 2011 that required all nonindependent agencies to conduct cost-benefit analysis in a transparent manner to get to better rules in that regard.
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Mr. Chairman, I yield myself such time as I may consume.
I would like to remind or at least acknowledge to the committee that CFTC's funding is up 49 percent since 2010 when the Dodd-Frank bill was presented, 49 percent increase in funding.
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Mr. Chairman, I yield myself the balance of the time.
It should come as no surprise that those who are being regulated have a difference of opinion with the folks proposing regulations. In this instance, the roles are actually reversed.
Tim Massad is a good guy, a good friend of mine, and an individual I look forward to working with. He doesn't want to change the deal he has got.
Well, if you look back at all the testimony that has been delivered throughout all of our hearings, most of the folks on the regulated side, the end users, the banks, the brokers, the SEFs, everybody else, they didn't like what the CFTC was doing to them. So the CFTC was able to power through the objections, and I would like for us to do the same thing, because what we have asked the CFTC to do is rational, straightforward stuff with respect to the changes at the operations of the Committee itself.
Over the past 4 years, the Committee on Agriculture has heard dozens of witnesses testify about the upheaval end users have been facing while trying to use derivatives markets in the wake of the postcrisis financial reforms. While this Congress took affirmative steps in Dodd-Frank to protect end users from harm, today it is clear there is still work to be done.
It isn't enough to simply raise these issues and hope that the CFTC will take care of them for us. For one, sometimes they cannot. There are numerous small oversights in the statute that have huge implications for end users that we correct in this legislation.
The CEA prevents many end users from claiming their exemption because they conduct their hedging activity out of an affiliate specifically created to manage risks throughout the entire corporate enterprise. The Commission can't fix this req.
The CEA requires foreign regulators to indemnify the CFTC, even though that is a legal concept that does not exist in many foreign legal jurisdictions. The Commission can't fix it.
Currently, the CEA defines some utility companies as financial entities, stripping them of their status as end users. The Commission can't fix that.
The core principles of SEFs were lifted almost word for word from the core principles for future exchanges, even though SEFs and future exchanges operate completely differently and SEFs cannot perform many of the functions of a futures exchange. The Commission can't fix this.
Certainly, the Commission can and has tried to paper over these problems by issuing staff letters explaining how it would deal with incongruities of the law, but this isn't good enough. We know the problems, and we should fix them.
Sometimes, though, the problem isn't the statute. There are a number of end users that we have heard testimony about which the CFTC will not fix because the Commission simply disagrees with Congress about how to apply the law. We know these problems, too.
The Commission has promulgated a rule that reduces the transaction threshold, which triggers the requirement to register as a swap dealer from $8 billion to $3 billion, a 60 percent decline, while they are still studying the matter. We require that the CFTC complete the study and have a public vote on the matter before that automatic decrease occurs.
The Commission has proposed a new and significantly narrower method of granting bona fide hedge exemptions, upending longstanding hedging conventions for market participants. This proposal is also dramatically more labor intensive for the Commission to implement than the current process. We should insist that historic hedging practices be protected.
The Commission has dramatically expanded the recordkeeping requirements, requiring businesses to trade only for themselves and have no fiduciary obligations to customers to retain any record that would lead to a trade. This requirement demands that end users retain emails, texts, phone messages, and other records in which a potential trade or hedge was simply contemplated or discussed. We should clearly spell out that end users need only retain written records for actual transactions.
The challenges facing businesses that hedge their risks in derivative markets are real, and we have an opportunity today to fix some of those problems. Every dollar that a business can save by better managing risks is a dollar available to grow its business, to pay higher wages, to protect investors, or to lower the costs to consumers.
Over the past week, over 40 organizations representing thousands of American businesses have voiced their support for the important reforms of the Commodity End-User Relief Act. Businesses from agriculture producers, to major manufacturers, to public utilities need every tool available to manage their businesses and reduce the uncertainties they face each and every day.
I urge my colleagues to support the Commodity End-User Relief Act to protect these companies and to ensure that they have the tools they need to compete in a global economy. I urge my colleagues to support H.R. 2289.
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Mr. Chairman, this amendment corrects the technical errors found by legislative counsel in the process of preparing the Ramseyer for the reported bill, including section, subsection, and paragraph references, punctuation, and pluralization. I urge my colleagues to support this amendment.
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Mr. Chair, I don't oppose the amendment. It does improve the bill. We appreciate that. I am looking forward to supporting the amendment. I would also expect support on the underlying bill itself.
We have had a good discussion on why this bill is the right answer, bringing the right relief to the right people at the right time and does not do the things that have been spoken of in terms of rolling back Dodd-Frank.
This is a very light touch on Dodd-Frank, and it improves a bill that I don't think anybody would argue is perfect, but maybe they do argue that Dodd-Frank is perfect. I don't think it is perfect, and it does need these light touches.
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Mr. Chairman, I am not opposed to the amendment, as I said. The CFTC in fact does have an office of diversity and inclusion and has three people employed there to work at this very important issue.
I would like to put in the Record a statement from Chairman Massad. He says:
Our greatest resource is our employees, and each of us plays a role in ensuring that we recognize the benefits of the differences and the diversity that we bring to our environment.
The protections provided by the Equal Opportunity Act extend to everything we do at the agency, be it recruitment, hiring, appraisal systems, promotions, training and career development programs, or any other actions ..... All persons should be afforded equal employment opportunities at the Commission in an environment in which they can do their best.
I urge support of the amendment, and I yield back the balance of my time.
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