[Congressional Record (Bound Edition), Volume 153 (2007), Part 25]
[Extensions of Remarks]
[Pages 34535-34536]
[From the U.S. Government Publishing Office, www.gpo.gov]




            INTRODUCTION OF CFTC REAUTHORIZATION ACT OF 2007

                                 ______
                                 

                           HON. BOB ETHERIDGE

                           of north carolina

                    in the house of representatives

                      Thursday, December 13, 2007

  Mr. ETHERIDGE. Madam Speaker, as chairman of the Agriculture 
Subcommittee on

[[Page 34536]]

General Farm Commodities and Risk Management, which has jurisdiction 
over the derivatives industry, I am particularly pleased to introduce 
legislation to reauthorize the Commodity Futures Trading Commission and 
make significant improvements to the Commodity Exchange Act.
  As most of my colleagues know, in the previous Congress, under the 
leadership of Representatives Bob Goodlatte and Jerry Moran, this 
committee and the House of Representatives passed a very good CFTC 
reauthorization bill. Unfortunately the other body had a little trouble 
getting its work done, so our efforts went for naught.
  I believe we have put together another very good bill. And I want to 
express my appreciation to the full committee ranking member and my 
subcommittee ranking member, and their staffs for their hard work with 
us on this legislation and for cosponsoring this bill along with Full 
Committee Chairman Collin Peterson.
  In 2000, Congress took a bold step in dramatically changing how the 
CFTC oversees derivatives markets. By moving from a prescriptive 
regulatory regime to a principles-based structure, the Commodity 
Futures Modernization Act, CFMA, removed the shackles that restrained 
an industry; and we have seen tremendous growth in the derivatives 
industry as a result of Congress' work.
  But with growth often comes growing pains, and the industry has 
experienced that too. We have seen court decisions that call into 
question the CFTC's authority over certain foreign currency contracts 
and principal-to-principal transactions. We heard testimony about 
problems seen in the retail foreign currency business and concerns 
about how growth in some of the newer exempt commercial markets (ECMs) 
is impacting traditional futures markets. I believe we have developed a 
bill that addresses these issues in a fair and equitable manner.
  To correct the Seventh Circuit Appeals Court's ruling in CFTC vs. 
Zelener, which denied CFTC authority over certain foreign currency 
contracts, the bill adopts the language included in last Congress's 
reauthorization bill, H.R. 4473. Likewise, this legislation includes 
the provisions from H.R. 4473 which clarifies the CFTC's fraud 
authority over principal-to-principal transactions. Both of these 
provisions are solutions supported by the President's Working Group.
  During hearings we held this Congress, and those held by 
Representative Moran last Congress, we heard about problems in the 
retail foreign exchange industry. Like any industry, you have your good 
apples and your bad apples. The problem is that the bad apples have 
given the industry a black eye.
  Look at the statistics. According to the National Futures 
Association, members who act as counterparties to retail forex 
transactions account for less than 1 percent of NFA's membership, but 
account for more than 20 percent of the customer complaints filed with 
NFA's arbitration program.
  Additionally, more than 50 percent of NFA's current enforcement 
docket and more than 50 percent of NFA's emergency enforcement actions 
have also dealt with retail forex trading.
  CFTC Chairman Lukken testified that the Commission has brought 98 
cases against retail foreign exchange companies with 26,000 victims who 
invested over $461 million, and the caseload is only increasing. These 
figures demand greater oversight over this industry, and the provisions 
included in this legislation provide just that.
  In addition, we heard of problems with solicitors and other entities 
that seek out customer funds to invest into the retail foreign exchange 
business. These firms are unregulated and have made fraudulent or 
deceptive sales pitches in order to entice working men and women to 
give them their money. The legislation brings greater CFTC oversight 
over them as well.
  In July, in between farm bill mark-ups, my Subcommittee held a 
hearing to review trading of energy-based derivatives. The CFTC held 
its own hearing in September. What came from those hearings is the 
understanding that the CFTC needs some additional tools in its tool box 
to ensure that the successful growth we have seen in the derivatives 
industry is not having unintended consequences.
  To that end, this legislation would require additional oversight 
regarding contracts traded on exempt commercial markets that perform a 
significant price discovery function. Just as parents require more 
responsibility of their children as they grow and mature, so we are 
asking the exempt commercial markets to take on some self-regulatory 
responsibilities as their markets mature and individual contracts start 
serving significant price discovery functions.
  There were some other issues and some requests that members made for 
language to be included that I wish we could have addressed. However, 
as we move forward, I hope there will be opportunities to have those 
issues included.
  Whether it is energy trading, foreign currency trading, or trading in 
other commodities, the bottom line is keeping these derivatives markets 
functioning properly and protecting the American public's interest in 
having these markets available for offsetting risk. The issues 
affecting futures trading are often complex and esoteric. However, it 
is important that we work through the tough issues if we want to 
maintain a vibrant and healthy derivatives industry.
  The derivatives industry profoundly impacts the lives of every 
American from the food we eat to the cost of energy to what we pay for 
our homes. So it is important that we get it right, and I believe we 
have.
  I look forward to floor consideration of this legislation in the 
coming year.