New CFTC, But Same Old Rules

The US Commodity Futures Trading Commission (CFTC) is back up to full strength with a new chairman and two commissioners sworn into office in June and was met quickly with the US House of Representatives’ version of the CFTC reauthorization bill that promises major changes in day-to-day operations if passed into law.

One of the key components of the Consumer Protection and End User Relief Act, would require the regulator to implement quantitative and qualitative analysis of a proposed rule, or issue, prior to putting it forth.

Such a requirement would reduce the number of arbitrary actions the CFTC could take, explains Bill O’Conner, senior agricultural consoler at boutique law and lobbying practice McLeod, Watkinson & Miller. “Requiring a more sophisticated and accurate analysis of the impact the CFTC’s action could have on the economic process would limit some things the regulator could do.”

The bill also proposes establishing an Office of Chief Economist within the CFTC, which would be responsible for generating these studies.

According to Matthew Simon, a senior analyst at industry research firm Tabb Group, the CFTC should plan to give the new organization a substantial budget, if the bill becomes law.

“Of the 11 areas addressed in the cost-analysis portion of the bill, a lot of them will take a lot of time and energy to address,” he says. “At least the bill acknowledges that some of the items to be measured will be difficult to assess.”

The bill’s second major provision would increase commissioner evolvement in the CFTC’s daily activities by requiring CFTC staff not to issue exemptive, no-action or interpretive letters unless they first provide copies to the commissioners seven days before issuance.

“Over time, the CFTC has developed a system that requires little in the way of comments or involvement that exists in other regulatory processes,” says O’Conner. “The reliance on no-action letters and staff activity, which is reported only to the chairman, could be seen as trying to avoid the involvement of the other commissioners.”

The potential workflow might create occasional problems in terms of regulatory response times, he acknowledges. “But this is the price that some people think is worth paying considering how things have evolved currently at the CFTC,” he adds.

Politics, politics and more politics
The chances of the Consumer Protection Act becoming law this year is extremely slim, according to O’Conner.

In order for bills to become laws, the US Senate needs to adopt a similar bill that is then reconciled with the House version in a joint conference committee. Once reconciled, both chambers need to pass the reconciled bill, which is then sent to the President to be signed into law or vetoed.

“To my knowledge, the [Senate Committee on Agriculture, Nutrition and Forestry] has not started on its reauthorization bill,” says O’Connor. “The majority of the Senate have not been critical of the CFTC’s operation and I’d assumer its version of a reauthorization bill would reflect and be substantially different from the House version of the bill.”

Once the Senate reconvenes from its July break on August 4, it only will have 20 working days before retiring on September 1 in preparation of the Federal mid-term elections on November 4.

“That is not a lot of working days to finish a reauthorization bill considering they have not even started working on something that is fairly controversial,” he says.

O’Conner also doubts that Congress could or would pass a joint-reauthorization bill during its lame duck session, the period between the election and when the new Congress convenes in January 2015. “But I have been surprised before,” he adds.

If Senate does not pass its reauthorization bill, cannot reconcile it with the House version or it is vetoed by the executive branch, it is not the end of the world.

“In the history of the CFTC, it is not uncommon to go awhile between Congressional reauthorizations and let the current authorization lapse,” says O’Conner. “The CFTC does not stop function if its authorization has expired. When I was working on Capitol Hill, we once went four years with an expired authorization before putting together a new reauthorization bill.”

The most likely outcome, he thinks, is that CFTC reauthorization will be left to the new 114th Congress, which can re-start legislative process with a clean slate. “You do have a fair running start by having done a bill previously, unless circumstances in the outside world have changed,” he adds.