The head of the Commodity Futures Trading Commission (CFTC) confirmed last week that the final rule on restricting excessive speculation in the derivatives market will be on the agenda at its Tuesday meeting.

“Our next public meeting is scheduled…on Oct. 18. Next in the queue of staff recommendations are final rules related to clearinghouse core principles and position limits,” CFTC Chairman Gary Gensler told the Futures Industry Association in Chicago.

Gensler and Commissioner Bart Chilton clearly are on board to vote out the contentious final rule on position limits, but they will need the support of one of commissioners Jill Sommers, Scott O’Malia or Michael Dunn to pass the final rule.

The Commission’s proposed rule on hard position limits, which was approved in January, would limit the positions in futures and options contracts and economically equivalent swaps, other than bona fide hedge positions, that may be held by any entity in one of the 28 covered commodities, including crude oil, natural gas, heating oil and gasoline (see NGI, Jan. 17). The CFTC reportedly has made some changes to the proposed rule since then.

In addition to voting on position limits, “we may consider staff recommendations providing further exemptive relief — consistent with the CFTC’s July 14 exemptive order — from certain provisions of Dodd-Frank’s Title VII requirements,” Gensler said. The July order provided a six-month extension of certain provisions of Title VII that were due to kick in in mid-July (see NGI, July 18).

“Staff also is working very closely with Securities and Exchange Commission staff on three important joint rulemakings: those related to further defining entities and products as well as those related to reporting for investment advisors. This work is furthest along regarding entity definitions, including swap dealer, major swap participant and eligible contract participants…When the Commission considers the entity definition rule, we hope to also consider swap dealer registration rules,” Gensler said. Industry has been eagerly anticipating the entity definition rules.

Gensler said he doesn’t expect clearinghouses to submit swaps to the CFTC for mandatory clearing until either fall or winter. Under that time line, he said mandatory clearing would likely take effect toward the beginning of the second quarter of 2012. “Under recently proposed rules on implementation phasing, market participants would have an additional three, six or nine months to come into compliance with the clearing mandate, depending on a swap’s counterparties,” he said.

Meanwhile, the House Agriculture Committee is working on amendments to Dodd-Frank, but none are “dramatic changes,” said committee Chairman Frank Lucas (R-OK) last Wednesday.

Instead the four bills and three discussion drafts, which were the focus of an Agriculture Committee hearing in Washington, DC, “are aimed at ensuring that the regulators don’t implement rules that conflict with or are contrary to what Congress intended,” Lucas said. “They do not undermine reform and they are not efforts to repeal Dodd-Frank. They are intended to restore the balance that I believe can exist between sound regulation and a healthy economy.”

The House measures would require the CFTC to conduct better cost-benefit analyses of its regulations; clarify the definition of swap dealer; and provide a user exemption of margin requirements in certain instances. The committee is also reviewing three discussion draft bills not yet introduced to amend Dodd-Frank — the Small Business Credit Availability Act, the Pension Plan Risk Reduction Act, and a proposal to clarify the definition of swap dealer to end confusion with major swap participants.

A proper definition of swap dealer “is crucial to ensure that burdensome requirements…are not improperly forced upon nonfinancial end-users,” Brenda Boultwood, chief risk officer for Constellation Energy, told the committee. “The CFTC’s proposed definition includes exemptions that are too narrow and would lead energy firms and other end-users to be unintentionally caught up in a swap dealer definition and rules that would require onerous margin clearing, real-time reporting and capital requirements.”

Most of the bills and draft bills being considered “would carve a significant loophole in the new derivatives protections created by the Dodd-Frank Act,” according to Americans for Financial Reform (AFR). For example, HR 2682, which says margin requirements will not apply to a swap in which one of the counterparties is not a financial entity, “would have the effect of exempting the trading desks of big commodity and energy companies — even when they are trading on a purely speculative basis — from any requirement to put up collateral to back up their derivatives bets. The next Enron would be exempted from key derivatives safeguards under this law,” AFR said.

“In due course these [bills] will be considered” for mark-up, said Committee spokeswoman Tamara Hinton. But she said that a date for mark-up has not been scheduled yet.

Some committee members doubt that any of the bills will ever become law. “I understand that the House needs to move, but the reality is that these bills are not going anyplace in the Senate,” said Collin Peterson (D-MN). “I think they just muddy the water.”

Last week industry stakeholders at the LDC Gas Forum: Rockies & West in Los Angeles were told to provide as much input as possible into Dodd-Frank’s implementation.

Patrick McKinnon, CME Group’s associate director of energy products, warned, “If you don’t reach out and touch this [at the CFTC], it will reach out and touch you back…You will have changes in the way you do business, although at this point, we don’t know exactly what that change might be.”

BP plc’s Mark Stultz, senior vice president for regulatory policy and communications, said his company has worked with the National Petroleum Council, the National Gas Supply Association and corn growers to make recommendations for defining “swap dealers.” The effort is still a work in progress, he said.

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.