Lawmakers' desire to respond to the failures of MF Global and Peregrine Financial Group, as well as lingering disputes over the Dodd-Frank law and other financial-regulation matters, could soon find their way onto a vehicle for legislative action in Congress.
The law authorizing the Commodity Futures Trading Commission expires at the end of the month, and as lawmakers look to renew that statute, a host of related futures and financial-market issues are expected to play heavily in the debate.
The CFTC falls under the House and Senate Agriculture committees' jurisdiction because the futures industry was agricultural and mineral in origin. Although broader budget issues such as the debt ceiling and — particularly for the Agriculture committees — the farm bill are more pressing, CFTC reauthorization is on the To Do list for both the Agriculture committee chairs.
Because the agency does not have to be reauthorized to stay up and running (indeed, it has had many lapses through the years), legislation might not be drafted until later this year. Still, its five-year reauthorizations offer golden opportunities for lawmakers to put their stamp on the commission's priorities and to refocus its agenda.
The most likely issue to come up in both the Republican-led House and the Democratic-controlled Senate is the bipartisan concern about the dynamics that led to the collapse of MF Global and Peregrine, which together misplaced a total of $1.8 billion of their customers' money.
The House Agriculture Committee plans to hold a hearing this fall on proposals for beefing up customer protections.
The panel is waiting anxiously for the results of a joint study from futures-industry groups about options for creating an insurance system for their industry.
The committee also plans to review a package of rules the CFTC has in the works that aim to strengthen customer protections and to tighten oversight of brokerage firms.
The issue is also on the front burner in the Senate. The Senate Agriculture Committee held several hearings on the fallout from MF Global and Peregrine, including one last month.
Agricultural businesses that rely on commodity-futures contracts to manage their risks — such as grain elevators, oil-seed producers, and feed manufacturers — are pushing for Congress to consider changes in the bankruptcy code and other provisions to better ensure the proper segregation of customer funds. In the final days before its 2011 bankruptcy, MF Global dipped into customers' accounts to try to prevent its collapse.
"Customer-protection issues related to MF Global and Peregrine is a major issue for us. We have a number of member companies that were affected," said Todd Kemp, a vice president with the National Grain and Feed Association. "We think pretty strongly that there needs to be some changes to strengthen the rights of futures customers in the event of an insolvency."
Another ever-percolating CFTC issue that remains a big priority for Republicans in particular are the financial-market reforms from the Dodd-Frank Act that seek to rein in the $630 trillion swaps market.
The House has passed a spate of bills to ease or loosen derivatives reforms from the massive 2010 financial reform, but they have stalled in the Senate.
Lobbyists for some of the nation's biggest financial firms say CFTC reauthorization is a prime target for continuing their battle to rewrite Dodd-Frank and could be combined.
"The $64,000 question is of the bipartisan proposals ... proposing changes to [Dodd-Frank] — do any of them catch a ride on CFTC reauthorization?" asked a lobbyist for a large banking company, who was not authorized to speak on the record. "That is the threshold question."
A House Agriculture Committee aide said no decisions have been made but noted that some bills tweaking Dodd-Frank have passed the House with more than 400 votes, and could be swept into CFTC reauthorization.
But any attempt to loosen Dodd-Frank is more likely to happen in the House, given the Senate Democrats' reluctance to reopen the law.
Retired Rep. Barney Frank, D-Mass., who was a key author of the reform law, argued that Republican attempts to weaken financial regulations could play into Democrats' hands.
"If they want to help us take back the House, get some Republican members in various parts of the country to vote to protect overseas derivatives," he said in an interview. "It is a total misreading of America."
Another Dodd-Frank related provision that could come up in either chamber's reauthorization legislation, but in different ways, is on the question of whether the CFTC has the power to curb speculation in the futures market by placing limits on the number of positions that traders can hold on commodities like oil. Last year, a District Court threw out the CFTC rules on position limits, arguing among other things that the Dodd-Frank law did not give the commission a mandate to set such limits. The CFTC is appealing the verdict and is to reissue new rules on position limits soon.
Lawmakers, who are divided on the issue, could wait to see what the courts and the CFTC do. Any attempt by either chamber to nudge the courts' final verdict or prompt specific CFTC action is likely to be blocked by the other, argue agriculture aides and lobbyists tracking the issue.
Finally, there are a host of pet issues for Democrats, such as better guaranteeing the commission's funding stream through user fees — a structure that other financial regulators enjoy.
Republicans have sought to slash CFTC funding since the passage of Dodd-Frank as a way to prevent financial regulations from going into effect, and they are expected to prevent any user fee from gaining traction.