The Senate Committee on Agriculture, Nutrition and Forestry has passed legislation that would provide necessary regulatory relief and clarity for agricultural and agribusiness hedgers who use futures and swaps to manage their business and production risks.
The Senate committee took the action when approving Chairman Pat Roberts’, R-Kan.,legislation reauthorizing the Commodity Futures Trading Commission (CFTC) by a 11-9 vote.
Industry leaders commended Chairman Roberts for his leadership in crafting the bill. “It accomplishes several important clarifications and tweaks that will help ensure that U.S. farmers, ranchers and agribusiness hedgers maintain access to the risk management tools they need.” said NGFA Senior Vice President of Marketing Todd Kemp.
The committee also rejected an amendment that would have imposed user fees on some futures market participants, which would have the result of increasing costs to producers and other agricultural hedgers using futures markets.
In a letter to committee leaders earlier this week, NGFA and 23 other agricultural groups voiced support for Roberts’ “Commodity End-User Relief Act,” which includes the following provisions:
* Confirms the intent of the Dodd-Frank law and historical practice at the CFTC that anticipatory hedging qualifies as bona fide hedging activity, a hugely important matter for maintaining the availability and use of risk-management tools for producers and traditional hedgers.
* Codifies important customer protections to help prevent another MF Global situation.
* Provides a permanent solution to the “residual interest” problem – a regulation initially proposed by the CFTC, but subsequently withdrawn – that would have put more customer funds at risk by forcing pre-margining of hedge accounts held by futures commission merchants. Such a rule also potentially would have driven farmers, ranchers and small hedgers out of futures markets by imposing higher capital requirements to maintain hedge accounts.
* Gives the force of law to relief from burdensome and technologically infeasible recordkeeping requirements in commodity markets.
* Requires the CFTC to conduct a study and issue a rule before changing the de minimis threshold for swap dealer registration to make sure that doing so would not harm market liquidity and end-user access to markets.