Farm, Nutrition, and Bioenergy Act of 2007

Floor Speech

FARM, NUTRITION, AND BIOENERGY ACT OF 2007--Continued -- (Senate - December 13, 2007)

BREAK IN TRANSCRIPT

Mr. CRAPO. Mr. President, over the past years Congress has wrestled with the question of what was the appropriate level of regulation of futures exchanges and derivative markets. I have been very concerned about the potential efforts to change the manner in which we regulate derivatives or to impact the manner in which derivatives operate in the economy. It is critical that we strike the appropriate balance between protecting consumers and markets from trading abuse while ensuring continued growth and innovation in the U.S. markets.

The President's Working Group on Financial Markets, PWG, has played an important role in this debate by explaining why proposals that we have faced in the last few years for additional regulation of energy derivatives were not warranted, and has urged Congress to be aware of the potential for unintended consequences that would harm America's financial markets.

I have been repeatedly warned by our federal financial regulators that the importance of derivative markets in the U.S. economy should not be taken lightly, as businesses, financial institutions, and investors throughout the economy rely on these risk management tools. Derivatives markets have contributed significantly to our economy's ability to withstand and respond to various market stresses and imbalances.

In September of 2007, the Commodity Futures Trading Commission, CFTC, held a hearing to examine the oversight of trading on regulated futures exchanges or exempt commercial markets. Based on this hearing, the CFTC reported that the current risk-based, tiered regulatory structure has successfully encouraged financial innovation, competition, and modernization. However, the CFTC also found that additional oversight was warranted for certain contracts traded on an ECM that serve a significant price discovery function in order to detect and prevent manipulation. The CFTC proposed four legislative recommendations that were endorsed by the PWG.

In September of 2007, the Commodity Futures Trading Commission held a hearing to examine the oversight of trading on regulated futures exchanges and exempt commercial markets. Based on this hearing, the CFTC reported that the current risk-based, tiered regulatory structure has successfully encouraged financial innovation, competition, and modernization. However, the CFTC also found that additional oversight was warranted for certain contracts traded on an ECM that serves a significant price discovery function in order to detect and prevent manipulation. The CFTC proposed four legislative recommendations that were endorsed by the PWG.

It is for this reason that I decided to work with a bipartisan group of Senators who also wanted to address the appropriate level of regulation of futures exchanges and over-the-counter derivative transactions. I want to thank Senate Agriculture Committee Chairman Harkin, Senate Agriculture Committee Ranking Member Chambliss, Senator Feinstein, Senator Snowe, Senator Levin, and Senator Coleman for all their work.

I appreciate their willingness to work off the framework that was endorsed by the PWG and believe this allowed all of us to reach a deal. This was a significant concession to some Senators who have supported an alternative approach, and I would like to thank them for doing so.

In addition, this amendment extends the reauthorization of the CFTC, clarifies the CFTC authority over off-exchange retail foreign currency transactions, clarifies the antifraud authority over principal-to-principal transactions, increases civil and criminal penalties, and makes technical and conforming amendments. These provisions were also largely based off the framework that was endorsed by the PWG letter of November of 2007.

Earlier this week the House Agriculture Committee approved by voice vote a similar measure to reauthorize the Commodity Futures Trading Commission. It is my hope that in a conference the House and Senate will reconcile their differences over the reauthorization period and Zelener related issues.

I strongly believe that Congress needs to reauthorize the CFTC and frankly, so that we can give this agency all the tools it needs to protect investors and promote the futures industry and preserve the integrity of our markets. Moreover, the Senate must act to confirm Walt Lukken as Chairman of the CFTC. He has demonstrated throughout this reauthorization process the strong leadership that is essential to managing an agency. I want to commend him, his fellow commissioners, and staff for all their tremendous work.

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