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House Passes CFTC Reauthorization Bill With Amendment Making Position Limits Optional

Shortly before passing a bill to reauthorize the Commodity Futures Trading Commission (CFTC) for the next five years, House lawmakers, along mostly partisan lines, agreed Thursday to a controversial amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act that makes optional any federal position limits on commodity market derivatives.

HR 238, also known as the Commodity End User Relief Act, passed on a 239-182 vote. In addition to appropriating $250 million for each fiscal year (FY) and reauthorizing the CFTC through FY2021, the bill requires the Commission publish a cost-benefit analysis for any future rulemaking. It also amends the Commodity Exchange Act by requiring futures commission merchants to meet certain reporting requirements.

Under an amendment offered by Rep. Mike Conaway (R-TX), the CFTC would be permitted to "impose and implement position limits as it finds necessary, provided the Commission makes a finding prior to imposing such limits." The amendment was agreed to on a 236-191 vote.

"Prior to Dodd-Frank, the law was clear: If the Commission wanted to impose position limits, it first had to make a determination that such limits would, in fact, diminish, eliminate or prevent the burdens of excess speculation," Conaway said on the House floor Thursday. "Post Dodd-Frank, the courts have ruled that additions to the statute have rendered it ambiguous."

Conaway, who chairs the House Committee on Agriculture, which has jurisdiction over the CFTC, conceded that he and CFTC Chairman Timothy Massad "have disagreed for the past three years about how to read the statute, so today my amendment fixes the ambiguity..."

Democrats voiced their displeasure with both the bill and the amendment. Only seven Democratic lawmakers backed the bill, and two voted for the amendment.

"Let's be very clear about what this amendment does," said Rep. Joe Courtney (D-CT). "It is not about clarifying anything -- it's about stripping from the law Article 7 of Dodd-Frank, which was a congressional mandate to establish position limits for speculative trading. This was not done in a vacuum. It was done because there has been an explosion of speculative trading that's taken place in commodities markets.

"No one quarrels with the fact that end-users -- whether its farms, ranchers, airlines or businesses of all sorts -- should be able to exercise options in market swaps. In those instances, these are firms and businesses which actually take physical possession and control of the commodity...What has been a burgeoning trend is that firms were beginning to take dominant position in markets [that] were not even close or remotely involved in the actual production, processing or use of the commodities that were in question."

Among other things, HR 238 adds language to its definition of a swap dealer. Under the de minimis exception, the swap dealing threshold was set at $8 billion, which may be amended or changed only through a rule or regulation by the CFTC. The bill will also allow swap dealers and major swap participants that are not banks to use financial models used by banks and approved by regulators or the Securities and Exchange Commission.

Massad announced earlier this month that he would resign from the CFTC effective Jan. 20, the same day Donald Trump will be inaugurated as president. Much of the Commission's work over the last eight years under the Obama administration could be reversed or rescinded under the incoming Trump administration.

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