CFTC Reauthorization (Apr. 12)  

Mike & Co. —

The WSJ reported this afternoon that federal regulators are preparing to inform at least half of the nation’s eight systemically important banks that their living wills, the documents that dictate their bankruptcy plans, are not adequate.

For these firms, such an announcement would have many effects, from requiring that they go back to drawing board on living wills to or faceBsanctions — being required to hold higher levels of capital, which restricts borrowing, stock purchases, dividends, and protects against losses — that can eat into profitability.  If they fail to submit credible strategies repeatedly, regulators could force them to divest certain assets.  The shoe is expected to drop later this week when regulators release their findings.

Meanwhile, in other financial regulation news this week, Senate Agriculture is planning a CFTC reauthorization markup this Thursday, in a bid to move the commission off year-to-year funding for the first time since 2013.  More below.

Best,

Dana

——-

The Senate Agriculture Committee will conduct a markup hearing this Thursday on a reauthorization bill for the Commodity Futures Trading Commission which will be introduced by Chairman Roberts.  In the meantime a draft of the legislation has been made available.

Since 2013, the CFTC has relied on year-to-year funding for its operations, reflecting a Congressional inability to reach compromise for more permanent funding.  President Obama’s FY17 budget increases the CFTC budget to $330 million, up $80 million from 2016’s enacted $250 million amount.

The Commodity End-User Relief Act would fund the CFTC through 2019, assuming it can pass the Senate.

Provisions of the Reauthorization

Within the bill are a number of reform measures aimed at providing farmers, utilities, and other “end users” greater flexibility in hedging through the use of derivatives contracts, as well as new privacy protection for derivatives users.

  •   allows farmers, ranchers, and energy providers (end-users) to hedge against operational risks through derivatives
  • requires electronic confirmation of customer account balances and require that firms notify regulators when moving account balances
  • requires the commission to review and take action on the London Metal Exchange’s application as a foreign board of trade
  • strengthens protection of proprietary or sensitive information provided to the commission through disclosure requirements
  •  provides judicial oversight of the commission’s rulemaking by allowing CFTC-regulated firms to bring suit through federal appeals courts
  • requires the CFTC to maintain an $8 billion threshold for companies to be considered registered swap dealers as it keeps studying whether or not that level is appropriate

House vs. Senate

A House Reauthorization bill, passed last June along party lines, included a number of “nonstarter” provisions that are absent from the Senate measure, including a cost-benefit analysis requirement.  It drew a veto threat by President Obama.

Ranking Committee Member Sen. Debbie Stabenow:  “I don’t believe that we should be tinkering with active rulemaking decisions at the Commission.  If we are serious about offering end-user relief, then one part of that goal should be empowering the experts at the Commission to put in place the right rules for end-users and the market as a whole. As it stands, I do not believe this bill will receive the broad, bipartisan support necessary to pass the Senate.”

Reauthorization vs. Annual Funding

Reauthorization is technically part of how Congress funds the CFTC, but the agency can keep operating without it.  In practice, reauthorization gives the agriculture committees a vehicle to try to impose changes on the agency.  The most recent CFTC reauthorization was approved in 2008 and expired in September 2013.

If a compromise can be reached on the bill then the CFTC stands to benefit from a firm Congressional endorsement, which will lend some stability to their operation and help reduce uncertainty in the derivatives markets.

Visions of Regulators’ Futures

Roberts’ package of CFTC reforms is particularly topical in the wake of the MetLife v FSOC ruling, which has raised questions regarding the advisability of a federal judge ruling on the merits of a regulators’ actions.  This is something to watch closely as debate moves forward – after the MetLife victory opponents of financial regulation will be sure to want to expand the ability of financial entities to press court challenges against their regulators.

End-Users — Who Are They?

Pension funds, farmers and other downstream users of derivatives would get a “bona fide” exemption from certain hedging rules imposed by the CFTC under Senate Republican legislation released today.

The legislation is aimed at helping what are called “end-users” of derivatives, meaning the individuals who hold and execute a derivative contract.  End-users are distinct from dealers and investors in the sense that they use derivatives specifically to mitigate their operational risks.

Many end-users also happen to be the producers of commodities which form the basis of derivatives contracts, and rely on futures contracts for some financial safety due to their vulnerability in the face of commodities price changes.

32 thoughts on “CFTC Reauthorization (Apr. 12)  ”

  1. Wow that was unusual. I just wrote an really long comment but after I clicked submit my comment didn’t
    show up. Grrrr… well I’m not writing all
    that over again. Anyways, just wanted to say great blog!
    0mniartist asmr

  2. I’m not sure exactly why but this weblog is loading extremely slow
    for me. Is anyone else having this issue or is it a issue on my end?

    I’ll check back later on and see if the problem still exists.
    0mniartist asmr

  3. excellent publish, very informative. I wonder why
    the opposite specialists of this sector do not notice this.

    You should continue your writing. I’m sure, you’ve a great readers’ base already!
    asmr 0mniartist

  4. My brother recommended I would possibly like this web site.

    He used to be entirely right. This put up actually made my day.
    You can not imagine simply how so much time I had spent for this info!
    Thank you!

  5. Greetings from California! I’m bored to tears at work so I decided to check out your site on my iphone during lunch break.
    I really like the knowledge you present here and can’t wait to take a look when I get home.
    I’m shocked at how quick your blog loaded on my
    phone .. I’m not even using WIFI, just 3G .. Anyhow, great blog!

  6. I’m not that much of a internet reader to be honest but your sites really
    nice, keep it up! I’ll go ahead and bookmark your site to come back later on. Cheers

  7. Hello to all, the contents existing at this web page are
    in fact remarkable for people knowledge, well, keep up the nice work fellows.

  8. Hi, Neat post. There’s a problem with your website in internet explorer, could
    check this? IE nonetheless is the marketplace leader and a large
    section of other people will miss your wonderful writing because of this problem.

  9. Thanks , I have just been searching for info about this subject for ages
    and yours is the greatest I have came upon till now.
    But, what about the bottom line? Are you certain concerning the supply?

  10. My partner and I stumbled over here different website and thought
    I might check things out. I like what I see so now i am following you.
    Look forward to exploring your web page for a second time.

  11. scoliosis
    An impressive share! I have just forwarded this onto
    a co-worker who has been conducting a little homework on this.
    And he in fact bought me dinner due to the
    fact that I discovered it for him… lol. So let me reword
    this…. Thank YOU for the meal!! But yeah, thanx for
    spending the time to discuss this matter here on your blog.
    scoliosis

  12. scoliosis
    Howdy just wanted to give you a quick heads up. The words
    in your article seem to be running off the screen in Internet explorer.

    I’m not sure if this is a formatting issue or something to do with browser compatibility
    but I thought I’d post to let you know. The style and design look great though!
    Hope you get the issue solved soon. Cheers scoliosis

  13. Pretty great post. I simply stumbled upon your weblog and wanted to say that I’ve truly
    loved surfing around your weblog posts. After all
    I will be subscribing on your feed and I hope
    you write again soon!

  14. Hi would you mind stating which blog platform you’re using?
    I’m looking to start my own blog in the near future but I’m having a hard time choosing between BlogEngine/Wordpress/B2evolution and Drupal.
    The reason I ask is because your design and style
    seems different then most blogs and I’m looking for something unique.
    P.S Apologies for getting off-topic but I had to ask!

  15. Someone necessarily assist to make severely posts I would state.
    This is the first time I frequented your web page and to this point?

    I amazed with the analysis you made to make this particular publish
    incredible. Wonderful activity!

  16. Hey I am so delighted I found your website, I really
    found you by error, while I was researching on Yahoo for something else,
    Nonetheless I am here now and would just like to say thank you
    for a marvelous post and a all round exciting blog (I also love the theme/design), I don’t
    have time to look over it all at the minute but I have bookmarked it and also
    added in your RSS feeds, so when I have time I will be back to read a great deal
    more, Please do keep up the superb jo.

  17. I loved as much as you will receive carried out right here.
    The sketch is tasteful, your authored subject matter stylish.
    nonetheless, you command get bought an nervousness over that
    you wish be delivering the following. unwell unquestionably come more formerly again since exactly the
    same nearly very often inside case you shield this hike.

  18. I like the valuable info you supply in your articles. I will bookmark your blog and test
    again right here frequently. I am fairly certain I will learn lots of new stuff proper here!

    Best of luck for the next!

Leave a Comment

Your email address will not be published. Required fields are marked *