CFTC nominees promise ag sensitivity as they enforce Dodd-Frank
March 06, 2014 | 05:55 PM
If futures industry executives were hoping for a lighter touch from the Commodity Futures Trading Commission after Chairman Gary Gensler left, they did not hear it today when three nominees for the commission told the Senate Agriculture Committee they would pay attention to agriculture in strictly enforcing the Dodd-Frank financial services reform act, while acting CFTC Chairman Mark Wetjen asked the House Agriculture Appropriations Subcommittee for more resources to enforce the law.
In her opening statement at a confirmation hearing, Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., noted that the last time the committee met to confirm a new chairman of the committee, “we were in the middle of a global financial crisis so deep that 8 million jobs were lost.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act “ushered in a new era of accountability and transparency in the markets, but that only works if the law is implemented and enforced, and a significant part of that falls to the CFTC,” Stabenow told the nominees
She also told them they would have to ensure that the CFTC is “keeping a watchful eye on market participants like clearinghouses, exchanges, and swap dealers” and that they “will have an obligation to make sure that we never see another MF Global or Peregrine Financial shatter faith in either the markets or the ability of regulators to oversee those markets.”
Timothy Massad
Some futures industry executives considered Gensler to have been an overzealous regulator, but there were no signs today that Timothy Massad, the nominee to succeed him, or the other commissioner nominees propose to use a lighter touch.
Industry executives have suggested that strict U.S. regulation will send futures business overseas, but Sen. Richard Blumenthal, D-Conn., said Massad has the stature “to help impose the high bar we need on the international regime.”
Blumenthal introduced Massad, who maintains a home in Norwalk, Conn., as a constituent.
Massad, who as a Treasury official he has been working on the fiscal crisis for the past five years and worked on derivatives as a lawyer, started his testimony by pointing out that “excessive risk related to derivatives, particularly at the American International Group, was one of many factors that contributed to that crisis.”
The government has recovered every taxpayer dollar committed to prevent the collapse of AIG and made a profit, Massad said, but “We must never forget that the true cost of the financial crisis is not the fiscal cost of the programs. It is the millions of jobs lost, the homes foreclosed, the retirements postponed and the dreams deferred.”
“I believe there is nothing more important than a robust enforcement program in order to protect the integrity of our financial markets,” Massad continued.
Christopher Giancarlo
Christopher Giancarlo, a Republican nominee to replace the unexpired term of Jill Sommers, who left last year, thanked Senate Minority Leader Mitch McConnell, R-Ky., for backing his nomination.
Giancarlo, an executive with an intermediary company in the wholesale financial markets, said, “Without question counterparty exposure related to bilaterally cleared over-the-counter (OTC) swaps helped amplify and spread the financial crisis.”
“I have been a consistent advocate for practical and effective implementation of the three pillars of Title VII of Dodd-Frank: enhances swaps transparency, regulated swaps execution and central counterparty clearing,” he said. “My support for these reforms is based not on academic theory or political ideology. It is based simply on practical experience.”
But Giancarlo added that, “if excessive regulation arbitrarily increases the cost of risk management, the overall economy will suffer. If confirmed, I will commit myself to ensuring proper balance.”
Sharon Bowen
Sharon Bowen, a Democratic nominee for the seat now held by Bart Chilton — who continues to serve even though his term has expired — said she would combine her experience as a securities lawyer with her background in her approach to the agency.
“As the youngest of five children raised with modest means in the segregated, small town of St. Julien’s Creek, Va., I understand the importance of being the voice of the under-represented and small business owners who have not had a seat at the table as I do today,” she said.
Bowen noted there are differences between the securities and futures markets.
“Capital formation in the securities market is different from the management of risk and price volatility in the futures markets,” she said.
“Each has its own nuances that impact consumers and end-users. I recognize that our physical commodity markets need to be protected from excessive speculation and manipulation. And we must acknowledge that esoteric and other creative financial products don’t always benefit consumers.”
In a question-and-answer period, a series of senators asked repeatedly about speculation, position limits, end users, and the nominees’ lack of experience in agriculture.
Massad said the CFTC must make sure that end users can use the markets for price discovery. He noted that he has advised businesses that “touched” on the farm sector, including a fertilizer company that wanted to hedge its costs on natural gas and a major rural electric co-op.
Sen. Amy Klobuchar, D-Minn., said she has been worried about excessive speculation and shares the concerns of Delta Airlines about excessive speculation in the airline fuel market.
Sen. Sherrod Brown, D-Ohio, said that he worries about speculation in the aluminum market because aluminum is used by bottlers and beer companies.
Massad said that a rule on position limits in markets should be finalized. An earlier version was thrown out by the courts.
Massad also said there is a question of what businesses large banks that get help from the government should be involved in, but the question is beyond the jurisdiction of the CFTC.
Both Massad and Giancarlo said they would use the powers of the CFTC against market manipulation of any kind. Bowen said she would use “the full enforcement powers” of the CFTC against excessive speculation.
The nominees made so many statements against excessive speculation that Sen. Saxby Chambliss, R-Ga., said he wanted to make sure “you have no bias against speculators,” and they all assured him they see a role for speculators, and were only talking about excessive speculation that the CFTC by law is supposed to guard against.
Klobuchar also asked Massad for his views on the regulation of the market for the Renewable Identification Numbers (RINS) that the Environmental Protection Agency uses to track ethanol.
Klobuchar noted that she believes speculation played an “unfair” role in EPA’s decision to propose a reduction in the Renewable Fuel Standard volumetric requirements for biofuels production.
Massad said he is “concerned” about the RINs market and that the RINs market “is one we should be actively looking at and functioning properly.”
Chambliss, Sen. John Hoeven, R-N.D., and others all commented that none of the nominees has direct farm experience.
Massad said he would be sure that one of the commissioners would chair the CFTC’s agricultural advisory committee, and Giancarlo also noted that the energy advisory committee needs leadership.
In response to a question from Sen. Bob Casey, D-Pa., all the nominees said the CFTC needs more money.
“I am very, very concerned about the adequacy of resources,” Massad said, noting that the CFTC’s jurisdiction has expanded under Dodd-Frank, but the budget has not.
Bowen said the agency needs “the resources to police the market.”
Giancarlo said he agreed with the need for more resources to address the CFTC’s “extraordinarily expanded mission,” but noted that his private sector experience has shown that business as well as the government has been asked to do more with less in the last five years
He said resource allocation with the CFTC is important and that the CFTC should “take on the right things, but not too many things.”
After the hearing, Stabenow said she expects the committee to vote on the nominees by the end of March.
Mark Wetjen
Meanwhile, at a House Agriculture Appropriations Subcommittee hearing, Acting Chairman Wetjen asked the subcommittee to increase the CFTC’s appropriation for fiscal year 2015 to $280 million from the fiscal year 2014 appropriation of $215 million.
As directed by Congress, Wetjen noted, the CFTC has submitted to Congress a spending plan outlining the agency’s allocation of current resources, which reflects an increased emphasis on examinations and technology-related staff.
“The unfortunate reality is that, at current funding levels, the commission is unable to adequately fulfill the mission given to it by Congress: to prevent disruptions to market integrity, protect customer assets, monitor and reduce the build-up of systemic risk, and ensure to the greatest extent possible that the derivatives markets are free of fraud and manipulation,” Wetjen said, according to his written testimony.
Rep. Robert Aderholt, R-Ala.
House Agriculture Appropriations Subcommittee Chairman Robert Aderholt, R-Ala., said the CFTC is overstating its needs, while Rep. Rosa De Lauro, D-Conn., said the agency needs more resources, Reuters reported.
Aderholt said in a statement after the hearing that “putting forth ‘hundreds of trillions of dollars’ as the notional value as a cost justification is specious at best. That amount is several times larger than the entire world economy.”
“A more sound measure would include trading volume, amount of customer funds and the number of registered entities under CFTC oversight,” Aderholt said. “The highest metric provided is an increase of 40 percent for registered entities since the financial crisis, yet funding for the CFTC has increased percent. This hardly builds the narrative for a cash starved regulator body.”
“In a marketplace that is increasingly automated via electronic trading and algorithms, a more valid approach to creating a stable and well regulated marketplace comes from an increase in technology instead of payroll,” he added.
In her opening statement at a confirmation hearing, Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., noted that the last time the committee met to confirm a new chairman of the committee, “we were in the middle of a global financial crisis so deep that 8 million jobs were lost.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act “ushered in a new era of accountability and transparency in the markets, but that only works if the law is implemented and enforced, and a significant part of that falls to the CFTC,” Stabenow told the nominees
She also told them they would have to ensure that the CFTC is “keeping a watchful eye on market participants like clearinghouses, exchanges, and swap dealers” and that they “will have an obligation to make sure that we never see another MF Global or Peregrine Financial shatter faith in either the markets or the ability of regulators to oversee those markets.”
Timothy Massad
Some futures industry executives considered Gensler to have been an overzealous regulator, but there were no signs today that Timothy Massad, the nominee to succeed him, or the other commissioner nominees propose to use a lighter touch.
Industry executives have suggested that strict U.S. regulation will send futures business overseas, but Sen. Richard Blumenthal, D-Conn., said Massad has the stature “to help impose the high bar we need on the international regime.”
Blumenthal introduced Massad, who maintains a home in Norwalk, Conn., as a constituent.
Massad, who as a Treasury official he has been working on the fiscal crisis for the past five years and worked on derivatives as a lawyer, started his testimony by pointing out that “excessive risk related to derivatives, particularly at the American International Group, was one of many factors that contributed to that crisis.”
The government has recovered every taxpayer dollar committed to prevent the collapse of AIG and made a profit, Massad said, but “We must never forget that the true cost of the financial crisis is not the fiscal cost of the programs. It is the millions of jobs lost, the homes foreclosed, the retirements postponed and the dreams deferred.”
“I believe there is nothing more important than a robust enforcement program in order to protect the integrity of our financial markets,” Massad continued.
Christopher Giancarlo
Christopher Giancarlo, a Republican nominee to replace the unexpired term of Jill Sommers, who left last year, thanked Senate Minority Leader Mitch McConnell, R-Ky., for backing his nomination.
Giancarlo, an executive with an intermediary company in the wholesale financial markets, said, “Without question counterparty exposure related to bilaterally cleared over-the-counter (OTC) swaps helped amplify and spread the financial crisis.”
“I have been a consistent advocate for practical and effective implementation of the three pillars of Title VII of Dodd-Frank: enhances swaps transparency, regulated swaps execution and central counterparty clearing,” he said. “My support for these reforms is based not on academic theory or political ideology. It is based simply on practical experience.”
But Giancarlo added that, “if excessive regulation arbitrarily increases the cost of risk management, the overall economy will suffer. If confirmed, I will commit myself to ensuring proper balance.”
Sharon Bowen
Sharon Bowen, a Democratic nominee for the seat now held by Bart Chilton — who continues to serve even though his term has expired — said she would combine her experience as a securities lawyer with her background in her approach to the agency.
“As the youngest of five children raised with modest means in the segregated, small town of St. Julien’s Creek, Va., I understand the importance of being the voice of the under-represented and small business owners who have not had a seat at the table as I do today,” she said.
Bowen noted there are differences between the securities and futures markets.
“Capital formation in the securities market is different from the management of risk and price volatility in the futures markets,” she said.
“Each has its own nuances that impact consumers and end-users. I recognize that our physical commodity markets need to be protected from excessive speculation and manipulation. And we must acknowledge that esoteric and other creative financial products don’t always benefit consumers.”
In a question-and-answer period, a series of senators asked repeatedly about speculation, position limits, end users, and the nominees’ lack of experience in agriculture.
Massad said the CFTC must make sure that end users can use the markets for price discovery. He noted that he has advised businesses that “touched” on the farm sector, including a fertilizer company that wanted to hedge its costs on natural gas and a major rural electric co-op.
Sen. Amy Klobuchar, D-Minn., said she has been worried about excessive speculation and shares the concerns of Delta Airlines about excessive speculation in the airline fuel market.
Sen. Sherrod Brown, D-Ohio, said that he worries about speculation in the aluminum market because aluminum is used by bottlers and beer companies.
Massad said that a rule on position limits in markets should be finalized. An earlier version was thrown out by the courts.
Massad also said there is a question of what businesses large banks that get help from the government should be involved in, but the question is beyond the jurisdiction of the CFTC.
Both Massad and Giancarlo said they would use the powers of the CFTC against market manipulation of any kind. Bowen said she would use “the full enforcement powers” of the CFTC against excessive speculation.
The nominees made so many statements against excessive speculation that Sen. Saxby Chambliss, R-Ga., said he wanted to make sure “you have no bias against speculators,” and they all assured him they see a role for speculators, and were only talking about excessive speculation that the CFTC by law is supposed to guard against.
Klobuchar also asked Massad for his views on the regulation of the market for the Renewable Identification Numbers (RINS) that the Environmental Protection Agency uses to track ethanol.
Klobuchar noted that she believes speculation played an “unfair” role in EPA’s decision to propose a reduction in the Renewable Fuel Standard volumetric requirements for biofuels production.
Massad said he is “concerned” about the RINs market and that the RINs market “is one we should be actively looking at and functioning properly.”
Chambliss, Sen. John Hoeven, R-N.D., and others all commented that none of the nominees has direct farm experience.
Massad said he would be sure that one of the commissioners would chair the CFTC’s agricultural advisory committee, and Giancarlo also noted that the energy advisory committee needs leadership.
In response to a question from Sen. Bob Casey, D-Pa., all the nominees said the CFTC needs more money.
“I am very, very concerned about the adequacy of resources,” Massad said, noting that the CFTC’s jurisdiction has expanded under Dodd-Frank, but the budget has not.
Bowen said the agency needs “the resources to police the market.”
Giancarlo said he agreed with the need for more resources to address the CFTC’s “extraordinarily expanded mission,” but noted that his private sector experience has shown that business as well as the government has been asked to do more with less in the last five years
He said resource allocation with the CFTC is important and that the CFTC should “take on the right things, but not too many things.”
After the hearing, Stabenow said she expects the committee to vote on the nominees by the end of March.
Wetjen asks appropriators for more money
Mark Wetjen
Meanwhile, at a House Agriculture Appropriations Subcommittee hearing, Acting Chairman Wetjen asked the subcommittee to increase the CFTC’s appropriation for fiscal year 2015 to $280 million from the fiscal year 2014 appropriation of $215 million.
As directed by Congress, Wetjen noted, the CFTC has submitted to Congress a spending plan outlining the agency’s allocation of current resources, which reflects an increased emphasis on examinations and technology-related staff.
“The unfortunate reality is that, at current funding levels, the commission is unable to adequately fulfill the mission given to it by Congress: to prevent disruptions to market integrity, protect customer assets, monitor and reduce the build-up of systemic risk, and ensure to the greatest extent possible that the derivatives markets are free of fraud and manipulation,” Wetjen said, according to his written testimony.
Rep. Robert Aderholt, R-Ala.
House Agriculture Appropriations Subcommittee Chairman Robert Aderholt, R-Ala., said the CFTC is overstating its needs, while Rep. Rosa De Lauro, D-Conn., said the agency needs more resources, Reuters reported.
Aderholt said in a statement after the hearing that “putting forth ‘hundreds of trillions of dollars’ as the notional value as a cost justification is specious at best. That amount is several times larger than the entire world economy.”
“A more sound measure would include trading volume, amount of customer funds and the number of registered entities under CFTC oversight,” Aderholt said. “The highest metric provided is an increase of 40 percent for registered entities since the financial crisis, yet funding for the CFTC has increased percent. This hardly builds the narrative for a cash starved regulator body.”
“In a marketplace that is increasingly automated via electronic trading and algorithms, a more valid approach to creating a stable and well regulated marketplace comes from an increase in technology instead of payroll,” he added.
