[Congressional Record Volume 146, Number 67 (Thursday, May 25, 2000)]
[Extensions of Remarks]
[Page E858]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         REAUTHORIZING AND REFORMING THE COMMODITY EXCHANGE ACT

                                 ______
                                 

                        HON. CHARLES W. STENHOLM

                                of texas

                    in the house of representatives

                         Thursday, May 25, 2000

  Mr. STENHOLM. Mr. Speaker, today our colleague from Illinois, Mr. 
Ewing, who chairs the Subcommittee on Risk Management, Research, and 
Specialty Crops of the Committee on Agriculture, is introducing a bill 
to begin the process of reauthorizing and reforming the Commodity 
Exchange Act (CEA).
  Mr. Speaker, the CEA is the primary statute providing for the 
regulation of futures and futures options trading in the United States. 
While its provisions are founded in legislation adopted by Congress in 
the 1920s, the Act has been modified repeatedly over the years in 
response to changing market conditions. We have changed the Act to 
cover metals and energy products, to cover trading in foreign 
currencies, to cover bonds and stock indexes, and to permit trading in 
options on futures. Each innovation that the market has brought forward 
presented challenges to Congress and to regulators. Along with the 
increase in contracts traded, total volume of trading in derivatives 
has grown vigorously and consistently over recent decades.
  In particular, over the last 15 years is the market in over-the-
counter derivatives such as swaps and forward rate agreements has 
increased tremendously. Because these products have economic 
characteristics so similar to exchange-traded futures contracts, a 
legal debate has taken place over whether or not they are in fact 
covered under the CEA. The Commodity Futures Trading Commission (CFTC) 
has generally found that these products are not appropriately regulated 
as futures contracts and has used powers at its disposal to settle that 
question to the extent possible.
  In 1989, the Commission issued the ``Swaps Policy Statement'' laying 
out in essence a safe harbor for trading in over-the-counter 
derivatives. So that the agency would have more flexibility in 
addressing the swap situation and other situations, the Congress in 
1992 granted the CFTC the authority to issue exemptions from the CEA to 
contracts that meet specified conditions. The CFTC has used that 
authority to exempt swaps (and other OTC derivatives), hybrid 
securities, and certain energy contracts from CEA regulation. In spite 
of these actions, an element of legal uncertainty remains regarding 
these products.
  Mr. Speaker, this Congress has recognized that the financial services 
industry is changing rapidly. We face this reality very clearly in the 
derivatives world. During a recent speech before the International 
Organization of Securities Commissions, CFTC Chairman William J. Rainer 
pointed out that only two new exchanges sought CFTC approval between 
1986 and 1997, while in the last six months the CFTC has become aware 
of numerous electronic exchanges that may
  Mr. Speaker, financial capital flows across international boundaries 
today with an ease that was unimaginable only ten years ago. As our 
commercial world continues to shrink in this manner, we see ever more 
clearly how vulnerable our industries can be to outside competition if 
we hamper them with unreasonable or inappropriate regulation.
  Mr. Speaker, these changes and trends challenge the Agriculture 
Committee--working together with the Banking and Commerce Committees--
to again update the CEA. Chairman Ewing has vigorously engaged all 
segments of this industry in an effort to discover what improvements 
need to be made. Thanks to his effort, the task has been clarified and 
we are poised to proceed ahead on legislation that meets these 
objectives:
  Provides full legal certainty to the OTC derivatives industry so that 
the rules of commerce will be clear.
  Modernizes our scheme for the regulation of trading that occurs on 
exchanges.
  Eliminates statutory barriers to trading products that can be useful 
to the management of financial risk.
  Mr. Speaker, I support Chairman Ewing's effort and am committed to 
participating alongside with him. I share his goals and know that we 
can find common ground on how they can be achieved. Important 
components of the legislation he introduces today are the result of 
very productive industry discussions and I believe they will lay an 
excellent foundation for modernization of the CEA. Along with industry 
representatives, the several regulators involved are engaged in 
cooperative discussions--a condition that has often been lacking in 
past modernization efforts--and stand to be extremely helpful in 
resolving these tasks.
  Mr. Speaker, while domestic modernization of financial contract 
regulation is an important goal I will also work to develop provisions 
that promote the goal of international harmonization of regulatory 
standards. The Bank for International Settlements (BIS) has 
demonstrated in recent years that a great deal of coordination can be 
achieved. In particular, the BIS has devised uniform capital standards 
that have been widely adopted by bank regulators of the major 
industrialized nations.
  Securities and futures regulators have also made great strides in 
recent years in creating formal lines of communication with their 
foreign counterparts to prepare for coordinated responses to cross-
border crises. Already they serve as members of the International 
Organization of Securities Commissions, which has facilitated much of 
this progress and served as a tool for its member nations to become 
familiar with the regulatory systems that exist.
  Our recent history has shown us that manufacturing capacity moves 
easily offshore. The manufacturing capacity of financial contracts--
capital--moves across borders with much greater ease in search of the 
lowest cost investment environment. By encouraging continued 
international discussions regarding regulatory standards, we can 
encourage the elimination of artificial distortions that threaten the 
competitiveness of our futures exchanges and other financial 
institutions. As we develop CEA improvements, we should do all we can 
to facilitate international coordination and harmonization.
  Mr. Speaker, in the weeks ahead I trust that all interested members 
of the public will take the opportunity to closely examine the bill Mr. 
Ewing introduces today. I am particularly hopeful that the markets' 
end-users--including agricultural producers and merchants, energy 
producers, and investors--will pay close attention and provide detailed 
comments regarding their view of the challenge of achieving appropriate 
regulation of derivatives markets. I look forward to assimilating those 
views and to working closely with Chairman Ewing, with the Subcommittee 
Ranking Member, Mr. Condit, and others on the Agriculture Committee and 
other committees in this effort.

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