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house Bill H.R. 2289

Should a Reauthorization for the Commodity Futures Trading Commission Come With Reforms Attached?

Argument in favor

Letting the CFTC ease into the new regulations by passing legislation telling them what to do is the best way to ensure that these reforms actually happen helping U.S. farmers, ranchers, and other participants in the derivatives markets.

AndrewGVN's Opinion
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01/20/2016
This bill seems practical. The bill's goal is to help both the sellers (farmers, ranchers, etc.) and the consumer with help managing risks and keep consumer prices low.
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Gregory's Opinion
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06/27/2015
Wall street has a gambling problem. They rig the games in their favor. Derivatives are the Crack coca in of wall street... never mind that the instrument itself is based on phantom liquidity. Only spoiled fat cats can't see why these instruments are dangerous and a lie to begin with.
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Curmudgeon's Opinion
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07/16/2015
Commode trading what? If this is in the Dept. of Commerce the entire sorry bureau should have been axed. It is not a function of our Constitutional governance.
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Argument opposed

The CFTC is trying to prevent derivatives from unravelling the financial markets again and causing another crash, it shouldn’t be told how to do its business by Congress. Plus, it'll just get vetoed even if Congress passes it.

Chas's Opinion
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05/08/2016
This is just another way to avoid regulation of a dangerous practice. We already bailed them out once. Why repeat the mistake?
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John's Opinion
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07/03/2015
No No No. Reduce red tape and regulations whenever possible - do NOT increase obstacles to the free markets. HOWEVER - no more bailouts.
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Victoria's Opinion
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06/12/2015
Less government intrusion is preferred and should be the goal of a Republican. Unless there are specifics not mentioned, that's my view. Commodities are financial instruments that should not be traded by the novice.
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What is House Bill H.R. 2289?

This bill would reauthorize the Commodity Futures Trading Commission (CFTC) through 2019, after its last authorization expired in September 2013. For those of you who don't dabble much in futures trading, the CFTC's big goals are to: 
"foster open, transparent, competitive, and financially sound markets, to avoid systemic risk, and to protect the market users and their funds, consumers, and the public from fraud, manipulation, and abusive practices related to derivatives and other products that are subject to the Commodity Exchange Act."
The CFTC regulates derivative contracts used by business owners to hedge risks and protect their companies, customers, and shareholders from unexpected economic changes. Derivatives are things like commodity futuresoptions, and swaps. Stock options are perhaps the most well known of these financial instruments, and they allow people purchasing the option to buy or sell stock at a specified price within a certain timeframe. This is beneficial for the individual, who might purchase shares of stock in a company but will protect themselves by hedging against a drop in the stock’s price by also purchasing options.

Several existing regulatory protections that apply to firms involved in futures markets would be made into law. The following consumer protection regulations would be made into law by this bill:

  • A requirement for regulators to electronically confirm customer account balances rather than using paper documents that can lead to forgeries;

  • Firms that move more than a specified percentage of customer funds between accounts must comply with permission and reporting requirements;

  • Undercapitalized firms (i.e. businesses that don't have the money they need to operate) have to notify regulators of their financial situation so that customer funds can be protected. Those firms also have to file an annual report with regulators;

  • Farmers, ranchers, and other futures customers would have a full business day to send their margin payments (a deposit of assets to cover some of the credit risk the other party is taking) to a futures commission merchant (FCM), reducing the cost of over-funding accounts.

The CFTC’s administration would be shaken up by making its division directors answerable to the entire Commission. A new Office of the Chief Economist would be established to report economic data and analysis to the entire Commission. “No-Action” letters that the CFTC issues would be subject to additional scrutiny, as they had been outside of the traditional oversight process. Proposed new rules would also be subject to a cost-benefit analysis before their implementation.

This legislation seeks to provide relief to end-users -- such as agricultural producers, manufacturers, electric and gas utilities, and pension plans -- by reducing barriers that have inhibited their participation in the futures markets.

Commercial end-users would no longer be treated like banks in terms of their reporting requirements, and all non-financial end-users would not be disadvantaged through public-reporting if they trade infrequently. There would also be additional time between the completion of a transaction and its reporting to protect these traders’ positions.

Farmers, grain elevators, agricultural entities, and commercial market participants would no longer be subject to record-keeping requirements that had mandated that they preserve all communications that may lead to a trade. Now, they would only have to record the final economic terms of their transactions.

Impact

End-users like farmers, ranchers, grain elevators, and commercial participants in the futures markets; the CFTC.

Cost of House Bill H.R. 2289

$1.10 Billion
The CBO estimates that implementing this legislation would cost $1.1 billion over the 2016-2020 period, or about $220 million per year.

More Information

Of Note: 

Believe it or not, the underlying plot of the 1980’s film Trading Places starring Eddie Murphy and Dan Aykroyd was focused on the commodities portion of the derivatives market (warning: mild spoilers ahead). In it, two of the film’s characters (the Duke brothers) try to corner the derivatives market for frozen concentrated orange juice, which leads to the Dukes ensnaring Murphy’s and Aykroyd’s characters in their nefarious plot.


In-Depth: This bill passed the House Agriculture Committee by voice vote, and the Committee’s Chairman Rep. K. Michael Conaway (R-TX) praised the bipartisan legislation, saying: 

“It codifies new practices instituted by the CFTC and other market regulators to protect customer margin, it includes a strong cost-benefit analysis measure to produce better rules, and it provides relief for end-users from burdensome requirements currently in place.”

The White House responded to this bill’s passage through committee by blasting it for failing to increase the CFTC’s funding, and issuing a veto threat. Further, the Administration — through the Office of Management and Budget (OMB) — said it would “undercut efforts taken by the CFTC over the last year to address end-user concerns,” which could threaten financial stability by encouraging “risky, irresponsible behavior.”


Media:

Summary by Eric Revell
(Photo Credit: consumerist.com)

AKA

Commodity End-User Relief Act

Official Title

To reauthorize the Commodity Futures Trading Commission, to better protect futures customers, to provide end-users with market certainty, to make basic reforms to ensure transparency and accountability at the Commission, to help farmers, ranchers, and end-users manage risks, to help keep consumer costs low, and for other purposes.

bill Progress


  • Not enacted
    The President has not signed this bill
  • The senate has not voted
      senate Committees
      Committee on Agriculture, Nutrition, and Forestry
  • The house Passed June 9th, 2015
    Roll Call Vote 246 Yea / 171 Nay
      house Committees
      Committee on Agriculture
    IntroducedMay 13th, 2015

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    This bill seems practical. The bill's goal is to help both the sellers (farmers, ranchers, etc.) and the consumer with help managing risks and keep consumer prices low.
    Like (1)
    Follow
    Share
    Wall street has a gambling problem. They rig the games in their favor. Derivatives are the Crack coca in of wall street... never mind that the instrument itself is based on phantom liquidity. Only spoiled fat cats can't see why these instruments are dangerous and a lie to begin with.
    Like (1)
    Follow
    Share
    Commode trading what? If this is in the Dept. of Commerce the entire sorry bureau should have been axed. It is not a function of our Constitutional governance.
    Like (1)
    Follow
    Share
    This is just another way to avoid regulation of a dangerous practice. We already bailed them out once. Why repeat the mistake?
    Like (1)
    Follow
    Share
    Too much free reign and lack of ethos in our financial markets.
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    Less government intrusion is preferred and should be the goal of a Republican. Unless there are specifics not mentioned, that's my view. Commodities are financial instruments that should not be traded by the novice.
    Like
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    Share
    Our economic casino is probably the most dangerously powerful and ill-intentioned organization on the planet. It is the ultimate expression of lavish and masturbatory self-interest, at the expense of whoever today's victim may be. We need stability, not growth, a sustainable existence, not a race to the top. We are already pushing our planet past the breaking point on a daily basis, and it's only encouraging more people to push even harder. Wall-street is a place where people with money try to push harder against the natural cycles to generate more money for themselves to continue pushing even harder tomorrow. It is the ultimate casino, and it's going to break the bank. Remember scarcity? How about absence? What about no longer being able to cultivate resources because we have burned and wasted all the fuel that was held in our soil? We need a plan to prevent our self-interests from killing all of us, and at least this is a step in the right direction.
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    Yeah!
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    Congress should keep its hands out of business.
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    No.
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    There needs to be some reforms
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    No No No. Reduce red tape and regulations whenever possible - do NOT increase obstacles to the free markets. HOWEVER - no more bailouts.
    Like
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    Share