House Panel Okays CEA Legislation

June 28, 2000

The House Committee on Agriculture Tuesday passed by voice vote, legislation sponsored by Rep. Tom Ewing (R-IL) that reauthorizes the Commodity Exchange Act (CEA) and modernizes laws for futures, futures options, and other derivatives including swaps.

"While there are vast competing interests in this legislation, almost everyone agrees that there is a great need for a more directed, more flexible, and less obtrusive regulatory framework for our futures and derivatives markets if we intend to keep those markets in this country," said committee Chairman Larry Combest (R-TX) said. "Moreover, almost everyone realizes the need to provide legal certainty for derivative transactions which have become such important risk management tools in the modern financial world."

BLOOMBERG NEWS reported that Commodity Futures Trading Commission Chairman William Rainer said, "Given the way (the bill) stands now, the commission (because of energy and enforcement provisions) cannot recommend supporting it." Rainer believes energy derivatives and futures should remain under CFTC oversight.

Under the bill, Rainer said, "the burden of proof of a violation reverts to the commission. ... It removes our current flexibility to sit down with an exchange to hammer out informally a solution. Rather, it implies that every time you go through one of these issues we have to bring a formal enforcement action. In the worst case, it is something that could be abused by the exchanges and lead to lots of legal wrangling."

He added, "You can envision a regulatory world where it's a lot easier to get into the competitive arena for trading because you don't have to go through a lot of gate-keeping processes. But that would increase the odds of a problem. So it seems to me that you want to make sure that as you move from front line to oversight you also consistently make sure that enforcement and oversight and surveillance have the suitable authority to get involved with a problem as quickly as possible. Remember, you've removed the gatekeeper."

Before approving the bill, the committee accepted by voice vote the chairman’s en bloc amendment that:

--allows agricultural and metal commodity futures to be traded on a derivatives transaction execution facility if the Commodity Futures Trading Commission (CFTC) creates rules for such trading;

--requires a derivatives clearing organization to be registered by the CFTC unless it is already registered by the Securities Exchange Commission (SEC), a federal banking regulator, or a recognized foreign regulatory authority;

--allows bilateral transactions of certain exempt commodities, including energy derivatives, by eligible participants; with the exception of metal commodities, these futures may also be traded on an electronic trading facility;

--permits U.S. futures commission merchants to sell to U.S. citizens certain foreign stock and index futures transacted on foreign markets.

The Committee also accepted by voice vote an amendment offered by Ranking Member Charlie Stenholm (D-TX) that contains congressional findings about the changing and global nature of derivatives markets. The amendment also includes a sense of Congress resolution regarding the importance of the CFTC's role in coordinating with foreign regulatory authorities, participating in international regulatory organizations and forums, and providing technical assistance to foreign governmental authorities.

Authorization for the Commodity Exchange Act expires on Sept. 30. The bill reauthorizes the CEA for five years and reforms the act in three primary ways: (1) incorporates the President’s Working Group findings on legal certainty for over-the-counter (OTC) derivatives; (2) codifies the regulatory relief proposal of the Commodity Futures Trading Commission (CFTC) and (3) reforms the Shad-Johnson jurisdictional accord regarding futures on securities.