On April 14, the Senate Committee on Agriculture, Nutrition & Forestry (Committee) held a business meeting to consider draft legislation by Chairman Pat Roberts (R-KS), titled the “Commodity End-User Relief Act” (CEURA), to reauthorize the Commodity Futures Trading Commission (CFTC or Commission). The bill – which seeks to address many concerns of end-users, including farmers and ranchers who use derivatives and futures contracts to manage and hedge risks – was favorably reported out of the Committee by a vote of 11-9.
The CFTC, the primary US regulator for futures and swap markets, is statutorily authorized by the Commodity Exchange Act (CEA). Since its creation in 1974, Congress has reauthorized the Commission seven times. At the end of the 2013 fiscal year, however, the CEA expired, and since then Congress has attempted, but failed, to reauthorize the Commission, though it has continued to operate under expired authorization and receive funding through the appropriations process.
During the course of the markup, a manager’s package was considered with the underlying bill without objection and two amendments were offered. Ranking Member Debbie Stabenow (D-MI) offered an amendment to allow the CFTC “to assess and collect fees to recover costs.” The amendment failed to pass by a vote of 10-9. In a statement released after the vote, CFTC Chairman Timothy Massad expressed support for the amendment, noting that the funding language posed by Senator Stabenow “addresses the fact that [the Commission is] the only federal financial regulator without some form of fee-based funding.” Chairman Massad remarked that he believes “it could be implemented without doing harm to the markets [the CFTC] regulate[s].” Senator Sherrod Brown (D-OH) offered and withdrew an amendment to “remove the section requiring a study of the de minimis exception level of swap dealing.”
Based on our analysis, certain requirements of registered entities may be impacted by the CEURA if it were to be enacted. For example, the following highlights select provisions that may be of interest to certain regulated entities operating in the derivatives markets:
- Section 202 - Clarification of Exemptive Authority. Section 202 of the CEURA would amend Section 4(c)(1) of the CEA so that the general exemptive authority for the Commission would apply with respect to “any swap,” and would strike the requirement that the Commission have express authority for exemptions regarding certain provisions. Section 4(c)(1) of the CEA grants the Commission the authority to exempt any transaction or class of transactions from certain provisions of the CEA, in order to “promote responsible economic or financial innovation and fair competitions.” These changes would broaden the Commission’s exemptive authority to waive or modify statutory requirements to include those requirements related to the oversight of swaps and not be limited to requirements related to the oversight of futures and options.
- Section 205 - Judicial Review of Commission Rules. Section 205 of the CEURA would add a section to the CEA providing for judicial review of CFTC rules. Specifically, the text of the amendment would allow a plaintiff adversely affected by a Commission rule to obtain review of the rule by petition. The provision is unclear as to what standards would apply to determine whether a party is “adversely affected.”
- Section 408 - Correction of References to Designated Contract Markets. Section 408 of the CEURA amends Section 4g of the CEA to replace the term “exchange” with “swap execution facility” (SEF). Section 408 further amends Section 8c of the CEA by replacing the term “exchange” with the term “registered entity,” which includes, among other entities, SEFs and swap data repositories. Replacement of such defined terms in this manner could potentially expand certain requirements for registered entities, including, potentially, requirements related to the publication of trading information and disciplinary actions undertaken by registered entities.