“With approval by the both House and Senate, we now have a bill that contains reforms on derivatives trading sought by AFIA for more than two years,” said Newman.
“The chairs, ranking members and their staffs were generous with their time and counsel, and AFIA appreciates their efforts to ensure provisions we supported remained in the final bill.”
Because both the House and Senate versions of the legislation contained significant but different reforms of futures market derivatives and expanded authorities for the CFTC, Newman said House and Senate Agriculture Committee chairs and ranking members played key roles in achieving many of AFIA’s goals for reform.
Access to risk management tools
Newman also said the Commodity Futures Trading Commission, led by Chairman Gary Gensler, is to be commended for its efforts to ensure agricultural and other commodity market participants have access to critical risk-management products and tools.
“We are pleased the final package contains the majority of the reforms AFIA pushed for on derivatives trading,” said Newman. “This is a legislative win for AFIA members and the industry.”
AFIA will immediately begin working with the CFTC and others to ensure the regulations drafted to put the new law into effect remain true to our goals for a well-regulated futures market that protects bona fide hedgers against the impacts of the massive speculative limit exemptions.
Key provisions of the financial re-regulation legislation supported by AFIA are below:
- Authority for setting aggregate speculative position limits for market participants across various exchanges and products.
- Significant enhancement of transparency in market transactions, including requiring virtually all clearable (even those exempted) transactions be reported on a timely basis.
- Required mandatory clearing of nearly all swaps, especially financial instruments with specific provisions to provide very limited exceptions, reviewable by the regulator.
- Nearly all swaps, including over-the-counter derivatives, will be under mandatory trading rules. As with clearing exceptions, any swaps not subject to this requirement must meet detailed criteria and will be subject to regulatory oversight to protect against efforts to get around the rules.
- Current exemptions for large financial speculators are effectively curtailed by listing the types of swaps subject to mandatory trading and clearing requirements. There are provisions to allow some flexibility on the part of the CFTC and the Securities and Exchange Commission to work with financial entities, such as small community banks, credit unions and the Farm Credit System.
- The new law provides detailed definitions of swaps dealers and major swaps participants to ensure strong oversight authorities by the CFTC.
- Registration requirements for foreign exchanges are strengthened to assist oversight.
- Restrictions on large banks’ ability to as act as swaps dealers are now in place, essentially requiring the banks to divest such swaps entities. There is some flexibility to enable smaller banks to make their case to regulators for an exemption under very limited circumstances.
- There is strengthened authority for the CFTC and the SEC to determine if certain market actions are disruptive or manipulative, as well as improved authorities to take enforcement actions when deemed necessary. In addition, the Federal Reserve is provided authority to step in if it determines actions by large financial entities are acting in a disruptive or manipulative manner.