[Congressional Record Volume 144, Number 39 (Tuesday, March 31, 1998)]
[Senate]
[Pages S2851-S2852]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ROBERTS:
  S. 1884. A bill to amend the Commodity Exchange Act to remove the 
prohibition on agricultural trade options outside contract markets; to 
the Committee on Agriculture, Nutrition, and Forestry.


             THE TRADE OPTIONS FOR FARMERS AND RANCHERS ACT

  Mr. ROBERTS. Mr. President, today I am pleased to introduce the Trade 
Options for Farmers and Ranchers Act (TOFRA). This legislation will 
provide farmers and ranchers across the United States with new, 
improved and affordable risk management products to help producers 
succeed in the 21st century.
  This bill fulfills a promise we made to America's farmers and 
ranchers during the 1996 farm bill debate. The far-reaching, market-
oriented reforms contained in the Freedom to Farm Act have provided 
substantial financial benefits to agriculture producers throughout the 
country. At the same time, this policy must be buttressed by proper 
risk management tools, regulatory relief, tax changes and a consistent, 
strong export policy. As a result, while leading the fight to get the 
federal government out of producers' daily lives and pocket-books, I 
promised to fight for better tools to help manage the tremendous 
financial risk that is inherent in life on the farm today.
  The TOFRA would repeal the Commodity Futures Trading Commission's 
prohibition on the sale of over-the-counter agriculture trade options. 
The CFTC ban dates to the Great Depression. It was put in place during 
a time when financial and commodity markets were viewed with both 
suspicion and fear. Today, we live in a time of mutual funds, 
computerized financial transactions and round-the-clock, global 
commodity trading. While we should never forget the important lessons 
of the Great Depression, we must not let the troubling memories of the 
past hold back our nation's farmers and ranchers when there is so much 
promise in the future.
  The CFTC's agriculture option ban created a monopoly. Today, if a 
farmer or rancher wants to hedge his price risk with an agriculture 
option, he must purchase the option from a commodity exchange. Over the 
years, the exchanges have performed a valuable service to farmers and 
ranchers by giving them the opportunity to manage their price risk in a 
regulated environment. Despite their best efforts, organized 
exchanges--primarily as a result of excessive regulation--have not been 
able to keep up with the tremendous demand in Farm Country for newer, 
better alternatives to existing risk management tools.
  I will continue to support legislative efforts to allow all 
interested parties--commodities exchanges included--to sell a wider 
variety of financial products. In fact, I continue to be frustrated 
with the CFTC's unwillingness to provide organized exchanges with the 
same basic business opportunities available to over-the-counter 
brokers. This bias is unfortunate and counterproductive to both buyers 
and sellers of commodities.
  At the same time, overly restrictive regulations are preventing 
America's farmers and ranchers from receiving the new, innovative 
products they need. The CFTC ban on over-the-counter agriculture 
options has been maintained in order to ``save farmers from 
themselves.'' The argument here is that farmers, grain elevators and 
others in rural America don't understand how options work. Therefore, 
the federal government has seen fit to limit severely the development 
of, and competition in, financial instruments that would provide 
substantial benefits to producers who understand commodity marketing in 
order to protect the few remaining producers who have no interest in 
managing price risk. Basically, current federal policy in this area is 
targeted towards the 1930s instead of the 2030s.
  Agriculture options are complex, expensive financial instruments. In 
order to use them properly, producers must have specialized knowledge 
of commodity marketing and the risks associated with participating in 
them. As a result, many producers may choose not to use the additional 
financial products made possible through this legislation. However, 
agriculture options should be readily available to those producers with 
the skill, knowledge and desire to use them.
  It is important that agriculture options--whether sold on an 
organized commodity exchange or through an over-the-counter broker--be 
sufficiently regulated. This legislation will simply make agriculture 
options just like all other options. If you purchase an option on 
wheat, natural gas or common stock, the bookkeeping, registration and 
disclosure requirements should be the same. Similarly, strong 
protections against fraud and manipulation are included to help prevent 
and punish fly-by-night operations and bucket-shops. In short, this 
bill establishes a simple formula: provide business opportunity with 
limited, but vigorously enforced rules. With proper oversight, this 
bill will be good for producers, brokers, businesses and consumers 
alike.
  I do want to thank the CFTC for recently submitting a proposed rule 
that would begin to lift its long-held ban on over-the-counter 
agriculture trade options. They have taken the initial step toward 
removing the ban on off-exchange agriculture options trading. 
Unfortunately, the CFTC's proposal is so limited, so burdened with red-
tape and reporting requirements, that significant benefit is doubtful. 
No new

[[Page S2852]]

products, no improved products and no more competition to drive down 
the price of risk management for America's farmers and ranchers.
  I am hopeful this legislation will renew CFTC interest in a workable 
regulation to govern agriculture option trading. I also urge the CFTC 
to act quickly to make these important tools available to America's 
farmers and ranchers. In conclusion, let me simply say this: if we give 
our producers a helping hand and appropriate safeguards, they will do 
the rest.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1884

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. AGRICULTURAL TRADE OPTIONS OUTSIDE CONTRACT 
                   MARKETS.

       The Commodity Exchange Act is amended by inserting after 
     section 4p (7 U.S.C. 6p) the following:

     ``SEC. 4Q. AGRICULTURAL TRADE OPTIONS OUTSIDE CONTRACT 
                   MARKETS.

       ``(a) Definitions.--In this section:
       ``(1) Agricultural trade option outside a contract 
     market.--The term `agricultural trade option outside a 
     contract market' means an agreement, contract, or transaction 
     (or class thereof) entered into on other than a contract 
     market for--
       ``(A) the purchase of an agricultural trade option 
     involving a commodity by a person who is a producer, 
     processor, commercial user, or merchant handler of the 
     commodity;
       ``(B) the sale or transfer of an agricultural trade option 
     involving a commodity; or
       ``(C) a purpose related to the business of a person 
     referred to in subparagraph (A).
       ``(2) Commodity.--The term `commodity' means an 
     agricultural commodity referred to in section 1a(3).
       ``(b) Authorization.--Subject to subsection (c), an 
     agricultural trade option outside a contract market shall be 
     permitted and shall be considered to be consistent with the 
     other provisions of this Act.
       ``(c) Regulation.--
       ``(1) Safeguards.--Subject to paragraph (2), an 
     agricultural trade option outside a contract market shall, to 
     the extent determined to be applicable by the Board, be 
     subject to--
       ``(A) sections 4b and 4o;
       ``(B) the provisions of sections 6(c) and 9(a)(2), to the 
     extent that the provisions prohibit manipulation of the 
     market price of any commodity in interstate commerce for 
     future delivery;
       ``(C) prohibitions against fraud or manipulation under 
     section 4c(b);
       ``(D) registration requirements of the Commission 
     administered by the National Futures Association;
       ``(E) a requirement that the person providing the option 
     has a net worth of at least $50,000;
       ``(F) requirements for full disclosure of risks and 
     responsibilities involved in the contract or agreement for 
     the option; and
       ``(G) recordkeeping and reporting requirements of the 
     Commission.
       ``(2) Limitations.--
       ``(A) Total assets.--Except for the fraud and manipulation 
     provisions of the provisions of law referred to in 
     subparagraphs (A), (B), and (C) of paragraph (1), paragraph 
     (1) shall not apply to an agricultural trade option outside a 
     contract market if the buyer and seller of the option each 
     have assets of a value of at least $10,000,000.
       ``(B) Physical delivery; structure and strategies.--An 
     agricultural trade option outside a contract market shall not 
     be subject to--
       ``(i) a requirement that the option, if exercised, be 
     physically delivered; or
       ``(ii) a limitation on the structure of the option or 
     trading strategies for the use of the option.
       ``(c) Termination of Effectiveness.--The authority provided 
     by this section terminates effective September 30, 2002.''.

     SEC. 2. CONFORMING AMENDMENTS.

       (a) Section 4(a) of the Commodity Exchange Act (7 U.S.C. 
     6(a)) is amended--
       (1) in paragraph (1), by inserting ``(A)'' after ``(1)'';
       (2) by redesignating paragraphs (2) and (3) as 
     subparagraphs (B) and (C), respectively;
       (3) in subparagraph (C) (as so redesignated), by striking 
     the period at the end and inserting ``; or''; and
       (4) by adding at the end the following:
       ``(2) the contract is an agricultural trade option outside 
     a contract market permitted under section 4q.''.
       (b) Section 4c(b) of the Commodity Exchange Act (7 U.S.C. 
     6c(b)) is amended in the first sentence by striking ``No'' 
     and inserting ``Except as provided in section 4q, no''.

     SEC. 3. REGULATIONS.

       Not later than 90 days after the date of enactment of this 
     Act, the Commodity Futures Trading Commission shall issue 
     such regulations as the Commission determines are necessary 
     to carry out this Act and the amendments made by this Act.
                                 ______