CFTC’s Dodd-Frank Power Curtailed in Bipartisan Measure

The U.S. Commodity Futures Trading Commission would face limits on its ability to impose rules on derivatives traded overseas and on manufacturers that use swaps to hedge business risks under bipartisan congressional legislation curbing the scope of the agency’s powers.

Republicans and Democrats on the House Agriculture Committee, which has jurisdiction over the CFTC, introduced a 48-page bill yesterday that would also force the agency to assess the costs of its Dodd-Frank Act regulations and conduct a new study of high-speed trading. The legislation is typically enacted once every five years.

Representative Frank D. Lucas, the Republican chairman of the committee, said in a statement that the legislation “improves the efficiency and accountability of the CFTC, ensures regulations are implemented in a sensible manner, maintains the integrity of the marketplace and guarantees our global competitiveness.”

The committee scheduled a meeting tomorrow in Washington to consider the measure, which would need to pass the full House and Senate before heading to the White House for signature. The Senate Agriculture Committee has yet to release similar legislation.

The bill is co-sponsored by Democratic Representatives Collin Peterson of Minnesota and David Scott of Georgia, and Republican Representative K. Michael Conaway of Texas.

The legislation is the first step in a broad congressional effort to review commodity laws since the CFTC implemented more than 60 regulations to increase oversight of swaps traded by firms including Goldman Sachs Group Inc., JPMorgan Chase & Co. and BP Plc.

Reduce Risk

The 2010 Dodd-Frank Act gave the agency the task of designing regulations to reduce risk and increase transparency in the swaps market following the 2008 credit crisis.

“There are provisions in this bill that would effectively unwind a good deal of the work the CFTC has already done and make it much harder for them to regulate the derivatives markets,” Marcus Stanley, policy director for Americans for Financial Reform, a coalition including the AFL-CIO labor federation, said in a phone interview.

The measure would require the CFTC to release formal rules setting the reach of its regulations on derivatives traded overseas. The agency wouldn’t be allowed to set policy through guidance documents as it did in July and November.

Industry’s Suit

Wall Street’s largest lobbying groups -- representing Goldman Sachs, JPMorgan, Deutsche Bank AG and others -- sued the CFTC in December to curtail its scope abroad. The associations said the agency illegally set policy through guidance documents and staff advisories instead of formal commission-approved rules.

The CFTC also faced scrutiny for its oversight of the futures markets after the 2011 collapse of MF Global Holdings Ltd. initially left a gap of $1.6 billion in customer funds. The collapse of Peregrine Financial Group Inc. in 2012 also prompted the agency to seek new restrictions on how brokers handle customer money.

The legislation introduced today seeks to reduce the costs of some of those restrictions on smaller traders that hedge agricultural commodities.

The measure “is reasonable legislation,” Peterson said in a statement, adding that the committee “put aside Washington’s extreme partisan rhetoric in favor of bipartisan legislation.”

The case is SIFMA v. U.S. CFTC, 13-cv-1916, U.S. District Court, District of Columbia (Washington).

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