The House last Thursday narrowly passed an agriculture spending bill that reduces fiscal year (FY) 2012 funding for the Commodity Futures Trading Commission (CFTC) by about 15%. At the same time the agency deferred the July 16 effective date of some parts of the Dodd-Frank derivative reform measures.
By 217-203, the House approved $125.5 billion in discretionary and mandatory funding for the Department of Agriculture and related agencies, which was more than $7 billion less than what President Obama requested. It sets CFTC spending at approximately $172 million in FY 2012, which would be $30 million less than the $202 million budget for the current year. And it would be $136 million below the $308 million requested for the CFTC by the Obama administration in the next fiscal year, which begins on Oct. 1. Some of the funding could be restored by the Senate.
The House approved by voice vote an amendment by Rep. Rosa DeLauro (D-CT) in which she expressed support for funding the CFTC at the president’s requested level, but it had no budgetary impact.
CFTC Chairman Gary Gensler made a pitch for more funding before the Senate Agriculture Committee last Wednesday. “Far greater resources are needed for the public to be protected. Without sufficient funding for the agency, our nation cannot be assured of effective enforcement of new rules in the swaps market…it would hamper our ability to seek out fraud, manipulation and other abuses at a time when commodity prices are rising and volatile.”
The proposed FY 2012 budget cut for the CFTC comes as the sweeping Dodd-Frank Wall Street Reform Act is poised to go into effect, requiring the CFTC to regulate for the first time the multi-trillion dollar derivatives market in addition to overseeing the futures market. The derivatives market has been estimated to be about nine times larger than the futures market.
As the July 16 deadline fast approaches for implementation of much of the sweeping Dodd-Frank, the CFTC last Tuesday delayed compliance with some parts of the new derivative law by at least six months to the end of the year.
By 5-0 the Commission voted to provide the “exemptive relief” to the provisions of Dodd-Frank that are “self-effectuating” on July 16, one year after the financial overhaul measure cleared Congress and was sent to the White House (see NGI, July 26, 2010).
The CFTC’s proposed order would provide temporary relief under Dodd-Frank for derivative transactions primarily involving financial commodities, energy commodities and excluded metals.
The exemptive relief also would extend to Dodd-Frank provisions that do not require rulemaking but reference “swap,” “swap dealer,” “major swap participant,” or “eligible contract participant,” which the CFTC has not yet defined. These persons or entities would be temporarily exempted from complying with Dodd-Frank until Dec. 31 or whenever the terms are defined, whichever is earlier.
Commissioner Jill Sommers voted for the proposed order but added that she did so “reluctantly” due to the fact that it would allow the $600 trillion derivatives market to operate as it has done since 2000. She further noted that it was unlikely that the agency would issue a final rule on product definitions — to coincide with one on entity definitions — by Dec. 31, which would require the agency to extend the exemptive relief even further.
Commissioner Scott O’Malia also begrudgingly voted for the proposed order, although the “relief offered isn’t perfect for the simple reason that it ends on an arbitrary date of Dec. 31, 2011 even if the Commission does not finalize key definitions [on swap entities or products] or swap execution framework before that time. He offered an amendment to “extend [the] relief until the Commission completes relevant rulemaking and final rulemakings become effective,” but it was defeated.
The proposed exempt relief would not apply to futures contracts, options on futures, or transactions by retail customers in foreign currency or other commodities. Nor would it apply to the provisions of Title VII of Dodd-Frank that have already become effective. Moreover, the agency noted that it would not limit its ability to pursue fraud and manipulative behavior in markets.
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