[Congressional Record Volume 146, Number 133 (Monday, October 23, 2000)]
[Extensions of Remarks]
[Pages E1877-E1878]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              COMMODITY FUTURES MODERNIZATION ACT OF 2000

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                               speech of

                          HON. JAMES A. LEACH

                                of iowa

                    in the house of representatives

                       Thursday, October 19, 2000

  Mr. LEACH. Mr. Speaker, last year, after nearly two decades of work, 
the United States Congress passed the Financial Modernization Act to 
bring our Nation's banking and securities laws in line with the 
realities of the marketplace. In the few days left for legislation in 
this Congress, an analogous opportunity presents itself to modernize 
the Commodity Exchange Act that governs the trading of futures and 
options.
  At issue is the question of whether an appropriate regulatory 
framework can be established to deal not only with certain problems 
that confront today's risk management markets, but new dilemmas that 
appear on the horizon.
  Legislation of this nature involves different committees with 
different concerns and sometimes competitive jurisdictional interests. 
From the perspective of the Committee on Banking and Financial 
Services, I would like to express my respect for the initial Committee 
on Agriculture product. That Committee's product, led by the gentleman 
from Texas (Chairman Combest) and the gentleman from Illinois (Mr. 
Ewing), reflected a credible way of dealing with a number of concerns 
that have developed during much of the last decade as derivatives-
related products have grown. Nonetheless, the Committee on Banking and 
Financial Services believes that some modifications to H.R. 4541, the 
Commodity Futures Modernization Act, were in order and in July, a 
number of clarifying approaches were adopted on a bipartisan manner.
  The fact is that the CEA, or Commodity Exchange Act, is an awkward 
legislative vehicle designed in an era in which financial products of a 
nature now in place were neither in existence nor much contemplated. 
Indeed, the Commodities Future Trading Commission was fundamentally 
designed to supervise agriculture and commodities markets, not 
financial institutions.
  Because of anachronistic constraints established under the Commodity 
Exchange Act, legal uncertainty exists for trillions of dollars of 
existing contractual obligations. This bill resolves this uncertainty 
for the benefit of customers of many of these products, but it does not 
fully resolve the legal certainty issue for some kinds of future 
activities.
  While I would have wished that more could have been achieved, it 
should be clear that no additional legal uncertainty is created under 
this bill and progressive strides have been made on fundamental aspects 
of the legal certainty issue.
  Here, I think it particularly appropriate to thank the staffs of the 
committees of jurisdiction and express my appreciation for the work of 
professionals at the Fed, Treasury and SEC who have added so much to 
the legislative process. But, above all, I believe this body owes a 
debt of gratitude to Mr. Ewing whose dedication and hard work have 
reflected so well on this Congress.
  While not all of the additions offered by the Banking Committee were 
adopted, the bill includes a number of provisions added by the 
Committee. These include a new section that excludes from the CEA 
nonagricultural swaps if the swap is entered into between persons who 
are eligible participants and the terms of the swap are individually 
negotiated and a new section to clarify that nothing in the CEA implies 
or creates any presumption that a transaction is or is not subject to 
the CEA or CFTC jurisdiction because it is or is not eligible for an 
exclusion or exemption provided for under the CEA or by the CFTC. In 
addition, other amendments have been added to conform this proposal to 
last year's financial modernization law.
  With regard to Section 107 of the proposed legislation, this 
provision excludes transactions done among eligible contract 
participants, where the material economic terms of the agreement are 
individually negotiated between the parties thereto.
  The market for swap agreements has grown exponentially over the past 
decade, but this growth has been restrained by legal uncertainty in the 
U.S. stemming from confusion as to whether the Commodity Exchange Act, 
which was designed to regulate floor-traded fungible contracts, should 
also apply to the individually tailored swaps. Section 107 makes it 
clear that swap agreements are not futures contracts. When parties 
negotiate and enter into a swap agreement under the provisions of 
Section 107, such a contract will not be subject to the Commodity 
Exchange Act. Furthermore, this provision makes it clear that such 
contracts are excluded without regard to whether the parties use a 
master agreement, confirmation, credit support annex, or other 
standardized forms to establish the legal, credit, or other terms 
between them. As long as the eligible parties have the ability to alter 
the material economic terms of the agreement, the contract is excluded 
from the Commodity Exchange Act.
  Finally, included in the bill are provisions written by the Banking 
Committee concerning the clearing of derivatives by banks and other 
regulated entities. Some of these provisions amend the Bankruptcy Code 
and I thank Chairman Hyde for allowing these provisions to move 
forward. Inserted below is an exchange of letters between the two 
Committees on this matter.
  For all the reasons stated above, Mr. Speaker, I urge my colleagues 
to support the legislation before us. Although not perfect, this 
proposal is far superior to current law, and I urge its adoption.

                                         House of Representatives,


                                    Committee on the Judiciary

                                Washington, DC, September 6, 2000.
     Hon. James A. Leach,
     Chairman, Committee on Banking and Financial Services, U.S. 
         House of Representatives, Rayburn House Office Building, 
         Washington, DC.
       Dear Chairman Leach: I am writing in regard to H.R. 4541, 
     the Commodity Futures Modernization and Financial Contract 
     Netting Improvement Act of 2000, which your Committee ordered 
     to be reported on July 27, 2000.
       It is my understanding that H.R. 4541, as ordered to be 
     reported, contains language in Section 116(d) and in Title 2 
     of the bill that comes within the Judiciary Committee's 
     jurisdiction over bankruptcy law pursuant to Rule X of the 
     House Rules. It is also my understanding that Section 116(d) 
     makes technical and conforming changes to the Bankruptcy Code 
     with respect to certain multilateral clearing organizations 
     and that the language in Title 2 of the bill is substantively 
     similar to Title X of H.R. 833, the Bankruptcy Reform Act of 
     1999, which the House

[[Page E1878]]

     passed, as amended, on May 5, 1999. Therefore, in view of 
     this language and in the interest of expeditiously moving 
     H.R. 4541 forward, the Judiciary Committee will agree to 
     waive its right to a sequential referral of this legislation. 
     By agreeing not to exercise its jurisdiction, the Judiciary 
     Committee does not waive its jurisdictional interest in this 
     bill or similar legislation. This agreement is based on the 
     understanding that the Judiciary Committee's jurisdiction 
     will be protected through the appointment of conferees should 
     H.R. 4541 or a similar bill go to conference. Further, I 
     request that a copy of this letter be included in the 
     Congressional Record as part of the floor debate on this 
     bill.
       I appreciate your consideration of our interest in this 
     bill and look forward to working with you to secure passage.
           Sincerely yours,
                                                    Henry J. Hyde,
                                                   Chairman.      

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                                         House of Representatives,


                  Committee on Banking and Financial Services,

                                Washington, DC, September 6, 2000.
     Hon. Henry J. Hyde,
     Chairman, Committee on the Judiciary, U.S. House of 
         Representatives, Rayburn House Office Building, 
         Washington, DC.
       Dear Henry: This letter responds to your correspondence, 
     dated September 6, 2000, concerning H.R. 4541, the Commodity 
     Futures Modernization and Financial Contract Netting 
     Improvement Act of 2000, which the Committee on Banking and 
     Financial Services ordered to be reported on July 27, 2000.
       I agree that the bill, as reported, contains matter within 
     the Judiciary Committee's jurisdiction and I appreciate your 
     Committee's willingness to waive its right to a sequential 
     referral of H.R. 4541 so that we may proceed to the floor.
       Pursuant to your request, a copy of your letter will be 
     included in the Congressional Record during consideration of 
     H.R. 4541.
           Sincerely,
                                                   James A. Leach,
                                                         Chairman.

     

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