The Hagstrom Report

Agriculture News As It Happens


House Ag Committee reviews CFTC oversight

Republicans and Democrats on the House Agriculture Committee continued today to spar over whether the Commodity Futures Trading Commission is doing a proper job, as the committee reviewed the implementation of the Dodd-Frank laws and CFTC Commissioner Gary Gensler said the Libor system of determining interest rates has a “structural problem.”

Noting that two futures firms with farmers as clients — MF Global and Peregrine Financial, also known as PFGBest — were found when they got into trouble not to have segregated funds, House Agriculture Committee Chairman Frank Lucas, R-Okla., asked, “Who is minding the store?”

“There are some in this town who argue that we need more regulations,” Lucas said. “But the fact remains that new regulations mean nothing when regulators are not enforcing the existing rules on the books. What we need is regulators doing the job.”

But Rep. Leonard Boswell, D-Iowa, noted that the House version of the fiscal year 2013 Agriculture appropriations bill would cut the CFTC budget, and asked Lucas, “Where are you trying to take us on this?”

Lucas replied that the House Agriculture Committee is not in charge of appropriations, but must exercise its oversight role.

Rep. Marcia Fudge, D-Ohio, asked Gensler if he believes the system of self-regulation, under which the National Futures Association was the front-line regulator of Peregrine Financial, can work or whether the government should be in charge of regulation.

Gensler initially did not answer question and noted that the system has been on the books for years. Pressed by Fudge, Gensler said, “It can work either way.”

Gensler noted that the impact of the benchmark called Libor – the London Interbank Offered Rate – is so great that 70 percent of the futures traded on the CME in Chicago are based on it.

The CFTC recently found that Barclays attempted to manipulate the Libor, and Gensler said he believes the markets will ultimately decide whether to turn to a different benchmark.