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96–178 PDF 2016

S. HRG. 114–150 

REGULATORY ISSUES IMPACTING 

END-USERS AND MARKET LIQUIDITY 

HEARING 

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

MAY 14, 2015 

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry 

( 

Available via the World Wide Web: http://www.fdsys.gov/ 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY 

PAT ROBERTS, Kansas, Chairman 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

JOHN BOOZMAN, Arkansas 

JOHN HOEVEN, North Dakota 

DAVID PERDUE, Georgia 

JONI ERNST, Iowa 

THOM TILLIS, North Carolina 

BEN SASSE, Nebraska 

CHARLES GRASSLEY, Iowa 

JOHN THUNE, South Dakota 

DEBBIE STABENOW, Michigan 

PATRICK J. LEAHY, Vermont 

SHERROD BROWN, Ohio 

AMY KLOBUCHAR, Minnesota 

MICHAEL BENNET, Colorado 

KIRSTEN GILLIBRAND, New York 

JOE DONNELLY, Indiana 

HEIDI HEITKAMP, North Dakota 

ROBERT P. CASEY, JR., Pennsylvania 

JOEL T. LEFTWICH, MAJORITY STAFF DIRECTOR

ANNE C. HAZLETT, MAJORITY CHIEF COUNSEL

JESSICA L. WILLIAMS, CHIEF CLERK

CHRISTOPHER J. ADAMO, MINORITY STAFF DIRECTOR

JONATHAN J. CORDONE, MINORITY CHIEF COUNSEL

(II) 

(III) 

C O N T E N T S 

Page 

HEARING(S): 

Regulatory Issues Impacting End-Users and Market Liquidity .......................... 1 

Thursday, May 14, 2015 

STATEMENTS PRESENTED BY SENATORS 

Roberts, Hon. Pat, U.S. Senator from the State of Kansas, Chairman, Committee on Agriculture, Nutrition, and Forestry ................................................. 1 

Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan ..................... 2 

Panel I 

Massad, Hon. Timothy, Chairman, Commodity Futures Trading Commission 

(CFTC), Washington, DC ..................................................................................... 4 

Panel II 

Duffy, Terrence A., Executive Chairman & President, CME Group, Chicago, 

IL ........................................................................................................................... 23 

Barber, Bruce, General Manager, Oilseed Risk Management, Archer Daniels 

Midland Co., (ADM), Forsyth, IL, Testifying on behalf of the Commodity 

Markets Council (CMC) ....................................................................................... 24 

Walker, Jeffrey L., Senior Vice President & Chief Risk Officer, Alliance for 

Cooperative Energy Services (ACES), Carmel, IN ............................................ 26 

Bopp, Michael, Partner, Gibson, Dunn & Crutcher, LLP, Washington, DC, 

Testifying on behalf of the Coalition for Derivatives End-Users ..................... 27 

Cota, Sean O., Co-Founder, Commodity Markets Oversight Coalition, Bellows 

Falls, VT ............................................................................................................... 29 

APPENDIX 

PREPARED STATEMENTS: 

Barber, Bruce .................................................................................................... 40 

Bopp, Michael ................................................................................................... 53 

Cota, Sean O. .................................................................................................... 58 

Duffy, Terrence A. ............................................................................................ 67 

Massad, Hon. Timothy ..................................................................................... 74 

Walker, Jeffrey L. ............................................................................................. 95 

DOCUMENT(S) SUBMITTED FOR THE RECORD: 

Roberts, Hon. Pat: 

The Growth Consequences of Dodd-Frank ..................................................... 106 

Bopp, Michael: 

Centralized Treasury Units (CTUs) ................................................................ 110 

Cota, Sean O.: 

Commodity Markets Oversight Coalition an Alliance of Commodity Derivatives End-Users and Consumers ........................................................... 111 

QUESTION AND ANSWER: 

Barber, Bruce: 

Written response to questions from Hon. John Thune .................................. 114 

Cota, Sean O.: 

Written response to questions from Hon. John Thune .................................. 115 

Page

IV 

Duffy, Terrence A.: 

Written response to questions from Hon. John Thune .................................. 117 

Massad, Hon. Timothy: 

Written response to questions from Hon. Pat Roberts .................................. 119 

Written response to questions from Hon. Debbie Stabenow ......................... 122 

Written response to questions from Hon. Charles Grassley ......................... 125 

Written response to questions from Hon. Heidi Heitkamp ........................... 128 

Written response to questions from Hon. Amy Klobuchar ........................... 130 

Written response to questions from Hon. Ben Sasse ..................................... 131 

Written response to questions from Hon. John Thune .................................. 132 

(1) 

REGULATORY ISSUES IMPACTING 

END-USERS AND MARKET LIQUIDITY 

Thursday, May 14, 2015 

UNITED STATES SENATE, 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, 

Washington, DC 

The committee met, pursuant to notice, at 10:05 a.m., in room 

106, Dirksen Senate Office Building, Hon. Pat Roberts, Chairman 

of the committee, presiding. Present or submitting a statement: 

Senators Roberts, Boozman, Hoeven, Perdue, Grassley, Thune, Stabenow, Brown, Klobuchar, Bennet, Heitkamp, and Casey. 

STATEMENT OF HON. PAT ROBERTS, U.S. SENATOR FROM THE 

STATE OF KANSAS, CHAIRMAN, U.S. COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY 

Chairman ROBERTS. Good morning. I call this meeting of the 

Senate Committee on Agriculture, Nutrition, and Forestry to order. 

Welcome to our first hearing related to the Commodity Futures 

Trading Commission, the CFTC. 

July marks the five-year anniversary of passage of the DoddFrank Act. Not too long after, this committee began reviewing its 

impact on farmers and ranchers and end-users. We have had several hearings with numerous on-the-ground witnesses, and to nobody’s surprise, have discovered that Dodd-Frank in its implementation placed many burdens on our end-users, our farmers and our 

ranchers, and yet the Congress has not sufficiently acted to address 

these hardships. 

As a refresher for us all, the term ‘‘end-user’’ refers to those participants who use derivatives to hedge the commercial risks associated with their normal operations, such as a grain company buying 

a farmer’s wheat, or an electric cooperative providing power to 

rural homes. End-users offset their normal operational risk by engaging in derivatives transactions. 

They did not cause the 2008 financial crisis, nor were they ever 

blamed for contributing to it. Because of this, Congress did not intend for them to be subject to Title VII of Dodd-Frank. However, 

these end-users have been captured by many rules and regulations 

stemming from the regulatory implementation of Dodd-Frank. 

So, today, we will continue our focus on regulatory issues impacting end-users and market liquidity. We will discuss the concerns of 

and increased regulatory burdens on the end-user community over 

the last five years. This hearing will help build the record for what 

Congress should address in legislation and what are overdue in acVerDate Nov 24 2008 16:08 May 03, 2016 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\USERS\MW42035\DESKTOP\DOCS\96178.TXT MICAH
2 

complishing, that is, reauthorizing the CFTC, which is our main 

goal as of this morning. 

CFTC reauthorization is a priority. I intend to work with Senator 

Stabenow and the members of this committee to come up with a 

bill that addresses our end-user-related concerns and fulfills our responsibility of reauthorizing the Commission. We need end-users 

and those who provide the platform for them to manage their risk 

to help us craft an appropriate pathway forward that protects the 

market from manipulation while not stifling commerce. I intend to 

keep working on legislation that eases the burdens on those who 

provide the crucial services our farmers and ranchers need to effectively operate in our fast-moving economy. 

In that spirit, I, along with Senators Perdue and Cochran, have 

introduced a bill that eases the regulatory requirements of certain 

transactions executed by centralized treasury units that manage 

the risk of end-users and its affiliates. This bill is based on bipartisan legislation offered in previous sessions and we hope it will be 

part of a bipartisan reauthorization package. The committee’s reauthorization process is the appropriate vehicle to address the regulatory concerns of our end-users, again, our farmers and ranchers. 

Another pertinent topic under review today is the fear of losing 

U.S. market liquidity. Many participants are concerned with the 

current and future state of market liquidity and what that means 

for U.S. competitiveness compared to foreign markets. For example, 

increased costs of clearing, lack of on-exchange swaps participation, 

future commission merchant consolidation or concentration, lack of 

mutual regulatory recognition by foreign governments—I could 

read that three times—and more liquidity moving to foreign jurisdictions are all causes of concern. We must find solutions so that 

our U.S. markets remain transparent, remain competitive, and remain resilient. 

I truly appreciate our witness being here today. CFTC Chairman 

Massad will testify on our first panel. Mr. Chairman, thank you so 

much for taking time out of your valuable schedule to come and be 

with us. 

Since becoming Chairman, he has been busy addressing many 

end-user-related concerns. I encourage the Chairman to continue 

his positive efforts and to keep up the good work and to make sure 

that our U.S. markets remain the most competitive in the world. 

I also look forward to hearing from all of our witnesses on our 

second panel. The committee appreciates you giving us your perspective on current regulatory issues and market liquidity. 

I now turn to my colleague, Ranking Member Stabenow, for any 

opening remarks that she may have. 

STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR 

FROM THE STATE OF MICHIGAN 

Senator STABENOW. Well, thank you, Mr. Chairman, for holding 

this very important hearing. We both share a desire to support 

end-users and to allow the system to be able to work in managing 

risk. 

Thank you Chairman Massad and the end-user representatives 

that are going to be testifying today. We look forward—as representatives of our nation’s growers and manufacturers and proVerDate Nov 24 2008 16:08 May 03, 2016 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\USERS\MW42035\DESKTOP\DOCS\96178.TXT MICAH
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ducers, it is very important that we hear what is working and what 

is not working. 

A little history. The Commodity Futures Trading Commission 

was established in October of 1974 when a great Michigan statesman, President Gerald Ford, signed the Commodity Futures Trade 

Commission Act into law. As the Commission celebrates its 40th 

anniversary this year, it is important to remember how we got 

where we are in the regulation of futures trading and consider 

what must be done to ensure the safety and soundness of this important market moving forward. 

In 1922, the USDA established an internal department, the 

Grain Futures Administration, to administer the Grain Futures 

Act. It is important that the committee reflect on this fact, I think, 

because the CFTC traces its history to a small agency within the 

Department of Agriculture, and for good reason. Before then, regulated futures were very much controlled by farmers and producers 

who used futures contracts to protect their harvest against unexpected price fluctuations and weather conditions. But, we are far 

removed from those simpler days of agricultural futures, and that 

fact is evident when we look at the group of end-users with us 

today. 

Every member of the Agriculture Committee takes great pride in 

supporting our nation’s farmers and ranchers, pride in getting a 

farm bill done together, and having a committee that works together in a bipartisan way. This responsibility and priority will 

never be in doubt. 

It is also important, I believe, that it is time that this committee 

think beyond the CFTC’s roots in the agency that President Ford 

helped create in 1974 to replace what he believed was an inadequate regulatory system for the futures market. 

The CFTC has become the premier global regulator, and it is important that we acknowledge this reality by providing the agency 

with the tools and the resources it needs to carry out very important responsibilities. As our country and economy continues to recover from the 2008 financial crisis, we must be committed to policies that protect taxpayers from risky financial practices that got 

us into the crisis in the first place. Rather than trying to keep pace 

with the evolving markets, I believe we must strive to be ahead of 

them. There is too much at stake. We cannot afford another crisis 

that costs the loss of even one job, let alone eight million. 

Recent CFTC enforcement actions demonstrate this need. Both 

domestically and internationally, the CFTC is the cop on the beat. 

The enforcement cases show that bad actors do still exist and will, 

as they have for many years, and they seek regulatory gaps that 

allow for the manipulation of market prices that affect everything 

from the bread on our shelves to the gasoline in our cars. So, we 

need the CFTC. We need the CFTC to be adequately supported and 

funded and have the tools it needs, and we need to make sure it 

is focused in the right direction on where the risk is. 

As we move forward toward reauthorization, I look forward to 

working with Chairman Roberts and members on the committee, 

as we always do, in a bipartisan way, to ensure the CFTC is 

equipped with the tools it needs to foster open, transparent, and 

competitive markets that our end-users feel confident that they can 

4 

use, and that is going to allow our end-users to manage their commercial risk in a safe, reliable way. 

I look forward to the hearing. Thank you, Mr. Chairman. 

Chairman ROBERTS. Thank you, Senator. 

Welcome to our first panelist before the committee this morning, 

the Honorable Tim Massad, Chairman of the Commodity Futures 

Trading Commission. The Chairman was sworn in on June 5, 2014, 

after being confirmed by the United States Senate, as both Chairman and Commissioner of the CFTC. Previously, Mr. Massad was 

nominated by President Obama and confirmed as the Assistant 

Secretary for Financial Stability at the U.S. Department of the 

Treasury. I am looking forward to learning about the CFTC’s 

progress on regulatory issues impacting end-users and market liquidity. 

Welcome, Mr. Chairman. Please proceed. 

STATEMENT OF HONORABLE TIMOTHY MASSAD, CHAIRMAN, 

COMMODITY FUTURES TRADING COMMISSION, WASHINGTON, DC 

Mr. MASSAD. Thank you, Chairman Roberts, Ranking Member 

Stabenow, and members of the committee. I appreciate the opportunity to testify today regarding the work of the CFTC and I am 

pleased to be here on behalf of the Commission. 

Let me begin by thanking our staff for their hard work and dedication, and I also want to thank my fellow Commissioners for their 

efforts. 

You have invited me to discuss the impact of the CFTC’s work 

on end-users and market liquidity. The topic goes to the core of our 

mission. The derivatives markets the CFTC oversees are profoundly important to our economy. These markets shape the prices 

we all pay for food, energy, and other basic needs. They enable 

businesses of all kinds to manage risk, whether it is a farmer locking in the price for his crops, a utility managing its fuel cost, or 

an exporter hedging foreign currency risk. As the primary regulator of these markets, we should constantly ask ourselves, how 

well are these markets serving the needs of the many businesses 

that depend on them? 

We also saw in the global financial crisis that the over-thecounter swaps market could generate excessive risks, risks that 

were not seen nor well understood and that helped to bring our financial system to the brink of collapse. Mr. Chairman, as you 

noted, commercial end-users were not responsible for those risks, 

but they and the American people generally paid a heavy price as 

a consequence of that crisis, and Congress, therefore, expanded our 

responsibility in order to bring oversight and transparency to the 

swaps market. 

So, our job today is to fulfill those new responsibilities while still 

making sure that these markets serve the needs of commercial end 

users. In carrying out that work, we must also recognize how the 

traditional markets we have overseen have grown dramatically in 

size, complexity, and technological sophistication. The CFTC oversees markets in over 40 physical commodities in addition to a wide 

range of financial futures and options products based on interest 

rates, equities, and currencies. There are over 4,000 actively traded 

5 

futures and options contracts and thousands more subject to our 

oversight when all tenders and associated options are included. 

The number of actively traded contracts has doubled since DoddFrank was enacted and increased six times over the last ten years. 

The amount of customer funds that must be protected has increased nearly 50 percent since 2010. Today, not only is almost all 

trading electronic, but in many products, a majority of trading is 

conducted through highly sophisticated automated programs. This 

is true not just for financial futures, but also for agricultural and 

energy commodities. The changes in our marketplace do not alter 

our mission, but they make the task of fulfilling that mission more 

challenging. 

I believe all four of us on the Commission today are committed 

to making sure these markets serve commercial end users effectively and efficiently. To that end, we have sought to make sure 

that our rules do not impose undue burdens or unintended consequences for these participants. We have taken several actions 

over the last year, including the following. 

We have addressed industry concerns regarding contracts with 

embedded volumetric optionality. We recently proposed amending 

our rules regarding trade options to eliminate unnecessary reporting requirements. We made sure that commercial firms can take 

advantage of the statutory exemptions to the requirements for 

mandatory clearing and trading of swaps when they book transactions through Treasury affiliates. We made it clear that new 

rules on margin for uncleared swaps would not apply to commercial 

end-users. 

We have addressed end-user concerns in a variety of other areas, 

as well, such as reporting and recordkeeping obligations, the posting of collateral with clearing members, the ability of local energy 

companies to access the energy swaps market, and the ability of 

firms to hedge in highly illiquid markets. We will continue to engage with market participants to make sure our regulatory framework is working for end-users and protecting the public. 

We are also working in many other areas so that these markets 

have sufficient liquidity and work well for commercial firms. In the 

interest of time, I will just briefly note them here, but I would be 

happy to discuss them with you. 

Just last week, I returned from Brussels, where I met with many 

European officials on cross-border issues. We are working to harmonize our rules with those of other countries as much as possible 

and seeking to make sure American firms are not disadvantaged 

in the global marketplace. 

We are making changes to the swap trading rules to enhance 

trading of swaps and to attract participation and liquidity. 

We are working to make sure clearinghouses are resilient, and 

we are focused on the costs of clearing and trading, especially for 

smaller participants. 

We are focused on cybersecurity, perhaps the number one risk to 

financial stability today. 

We are engaged in robust enforcement and surveillance efforts so 

that we do all we can to deter fraud and manipulation and promote 

integrity in our markets. Since 2012, the Commission has imposed 

over $4 billion in penalties against 13 large banks and brokers due 

6 

to manipulation of key global benchmarks. Already in fiscal year 

2015, the agency has imposed $2.5 billion in sanctions, an amount 

ten times our current budget. These fines and penalties go directly 

to the U.S. Treasury and are not available to fund our budget. 

The United States has the best derivatives markets in the world 

and we are determined to do all we can so that they continue to 

thrive and serve the needs of the businesses that depend on them. 

I look forward to working with you toward that goal. 

Thank you again for inviting me and I look forward to your questions. 

[The prepared statement of Mr. Massad can be found on page 74 

in the appendix.] 

Chairman ROBERTS. Well, thank you, Mr. Chairman. We appreciate your testimony and, again, for taking the time to join us 

today. 

I know that you have spent a lot of time addressing end-user 

issues since becoming Chairman. I thank you for that. However, 

end-users are not, at least with the contact with many members on 

this committee, are not entirely happy with the CFTC’s proposed 

changes to the decades’ old bona fide hedging definition. If the final 

definition of a bona fide hedge is too restrictive, how will end-users 

be able to appropriately manage their risk if they cannot get an exemption from position limits? Anticipatory hedging, as you know, 

sir, is crucial to managing an end-user’s risk. We encourage the 

CFTC to treat anticipatory hedging consistently with the original 

intent of Congress. Would you care to comment? 

Mr. MASSAD. Certainly, Senator. Thank you for the question. We 

are very committed to making sure that a final position limits rule 

provides for adequate bona fide hedging. That is critical, and it is 

also Congress’ direction to us. We have spent a lot of time looking 

at this issue and talking with industry participants and getting a 

lot of comment. I have done this as Chair of the Agricultural Advisory Committee, where we committed a special session of it. We 

have done it through our Energy and Environmental Markets Committee. We have had a special roundtable on it. We have gotten 

many, many comment letters that we are reviewing, and we are 

taking our time to really digest all that input so that we get this 

rule right. 

It is a very complicated rule. Anticipatory hedging is part of that. 

The process for how you get exceptions, even insofar as we will 

have specific exceptions in the rule, or specific provisions in the 

rule for bona fide hedging, there is also a process called non-enumerated exemptions and we are looking at that, trying to make 

sure that will be an efficient process. 

So, I am very committed to making sure that we end up in a 

place where market participants can engage in bona fide hedging. 

It is critical. 

Chairman ROBERTS. Do you have a time frame? 

Mr. MASSAD. Not precisely, Mr. Chairman. I want to make sure 

that we get this right and we are going to take our time to do that. 

Chairman ROBERTS. Well, we want you to get it right, and if you 

will please work with us, we would appreciate that very much. 

For decades, the Commodity Exchange Act and the CFTC regulations have required that customer margin posted for cleared derivaVerDate Nov 24 2008 16:08 May 03, 2016 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\USERS\MW42035\DESKTOP\DOCS\96178.TXT MICAH
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tives must remain segregated from the bank-affiliated clearing 

member’s own funds and that such margins should be treated as 

belonging to the customer. My question is, why do you believe the 

banking regulators are now assuming that this segregated customer margin can be used by the bank as leverage, which seems 

to contradict CFTC requirements? Did the banking regulators consult with the CFTC prior to finalizing these regulations? Can you 

give the committee a status update on your latest interactions with 

the banking regulators? 

Mr. MASSAD. Thank you for the question, Mr. Chairman. I am 

very concerned about the issues you have raised and I have expressed that concern both to the bank regulators, the heads of all 

the agencies, as well as publicly. We have got to get this right. 

I understand their objective, which is to have a leverage ratio as 

a backstop to risk weighting that, basically, does not have exceptions to it. But, nevertheless, as you point out, customer margin, 

cash margin, is segregated. I think we need to take that into account, particularly because we have made it a policy to encourage 

clearing here. So, we must make sure we do not have a rule that 

is cutting against that. 

We are engaged in dialogue with the regulators on this. I cannot 

say for sure where that will go, but we are very focused on this and 

believe we need to make sure we balance these objectives. 

Chairman ROBERTS. I appreciate that. Please keep in touch. 

Turning now to international regulatory harmonization, can you 

please elaborate on recent efforts to ensure our markets remain 

competitive and liquid. You have just come back from a trip discussing that. Furthermore, how has Dodd-Frank impeded data 

sharing among the various jurisdictions? Is there a way for Congress to revisit the Act and address this issue? 

Mr. MASSAD. Well, thank you for the question, Mr. Chairman. 

Let me address all those parts of it. 

First of all, I did just come back from Brussels, where I was focused on discussions with European officials on clearinghouse recognition. They still have not recognized our clearinghouses, which 

means that unless and until they do that, there is a possibility that 

European firms would not be able to transact business. 

There have been a couple of issues in that discussion. One was 

they asked us to look at our framework insofar as there are certain 

instances where our rules apply to their clearinghouses and they 

asked us to develop a framework of substituted compliance, which 

we agreed to do. We have basically agreed on that and we are prepared to offer that, assuming we settle the other issues. 

However, they have also raised concerns with our margin—what 

we call our margin methodologies, the process of how we collect— 

how we determine how much margin to collect from customers. 

Now, they did that because they focused on one particular aspect 

of the rules instead of looking at the whole rule set, and we actually have done a lot of analysis, which I have explained to them 

when I was over there, and there is actually my speech and a lot 

of diagrams about this posted on our website, that explain that, actually, our system is stronger than theirs. We actually have a much 

better system, in our minds, and I believe our methodology here 

8 

and our systems overall for risk mitigation are the gold standard 

in the world. 

So, I think we have made some progress in educating them about 

those issues and we have agreed on a path forward in terms of 

analyzing this, because they wanted us to, basically, collect more 

margin from customers, which would have hurt American competitiveness, hurt liquidity, hurt smaller participants in particular, and 

not really contributed to the overall stability of the system. So, that 

is where we are on that. 

There is a lot of other work going on in other areas across border 

harmonization. You asked about the reporting issue. We are working on that. There is quite a bit of work going on there to harmonize standards, and I think we are making very good progress 

there. 

In other areas, in trading, for example, in the trading rules, it 

is difficult there because Congress mandated us to do a rule. The 

agency was required to do it within a year. The agency published 

those rules on trading, but no other jurisdictions really have. So, 

when you have a global market and one jurisdiction creates trading 

rules but no one else does, it is kind of like the sound of one hand 

clapping. I mean, there is nothing for us to harmonize to yet. So, 

we are looking at what we think they are going to do and we are 

prepared to try to work to make sure we harmonize those rules, as 

well. 

So, there is a lot going on in cross-border. Another thing that is 

going on is on the rule for margin for uncleared swaps, not what 

we clear, but what is uncleared. I have been very committed to trying to get those rules as similar as possible from the get-go, so our 

staff has been working with staff in Europe and Japan on that. 

I hope I answered all the parts of your question. 

Chairman ROBERTS. Senator Stabenow. 

Senator STABENOW. Thank you, Mr. Chairman, and thank you 

again, Chairman Massad, for all of your work, and you and I have 

talked about the issues you just raised and I appreciate your focus 

on that. 

Since you were sworn in last June, you prioritized end-user relief, and I appreciate that very much. You mentioned some of the 

issues in your statement. In your opinion, have the affected enduser groups been satisfied with what the Commission has done to 

this point, and I am wondering if you are still hearing from them 

on the actions that you have already put in place in terms of rules 

or—— 

Mr. MASSAD. Thank you for the question—— 

Senator STABENOW. —think you have resolved some of those 

issues. 

Mr. MASSAD. Yes. I think we have, Senator. I think they have 

been very pleased by a number of the actions we have taken. I am 

sure there are still some areas where they would like to see us take 

further action and we are happy to engage with them on those 

things. 

Markets change. Markets evolve. That is why I think it is important for us to always be listening to market participants, but also 

to have the flexibility to try to respond quickly as we identify conVerDate Nov 24 2008 16:08 May 03, 2016 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\USERS\MW42035\DESKTOP\DOCS\96178.TXT MICAH
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cerns. So, I think we have made tremendous progress here, but I 

am very committed to continuing to engage with industry on it. 

Senator STABENOW. One of the other issues that has come up is 

how quickly can things change. So, you have done a number of 

things that are very important. We appreciate the focus and the actions that you have taken, but can those be easily changed or can 

end-users count on the rules that have been put in place? 

Mr. MASSAD. Oh, absolutely. I mean, most of what we have done 

has been through the rulemaking process, and to change that, you 

must go through the rulemaking process. 

Senator STABENOW. That is not a short process. 

Mr. MASSAD. No, it is not a short process, and it involves notice 

and comment and there is opportunity for public input. 

Senator STABENOW. Thank you. 

I would like to talk for a minute about the current civil penalty 

authority that you have as we move forward with reauthorization. 

Does the current authority produce enough of a deterrent for bad 

actors, in your judgment, or given the stakes involved, is the current penalty structure really just viewed as the price of doing business? Secondly, that leads to should we be increasing penalties for 

first-time violators or repeat offenders as we look at reauthorization? 

Mr. MASSAD. Very good questions, Senator. Yes, I think we should. The current penalty structure for most things is $140,000 

for a violation. Now, for certain types of things—manipulation—it 

is higher. But, $140,000 is just not appropriate, given the size, 

scale, complexity of these markets. We need to have a penalty regime that serves as an adequate deterrent. You can look at increasing those numbers. You can look at basing them on the loss that 

is caused by the violation, or the gain. You can also do formulas 

based on triple the gain or triple the loss, that sort of thing. But, 

I think we need to modernize those penalties, given the growth in 

complexity of these markets. 

Senator STABENOW. Thank you. 

You and I spoke several times in the past year about clearinghouses—— 

Mr. MASSAD. Yes. 

Senator STABENOW. —both from a risk standpoint as well as a 

regulatory standpoint, and back to your trip to Brussels last week, 

trying to find a solution with our European counterparts on clearinghouse recognition, can you speak to some of the other outstanding issues that are yet to be resolved and when you expect an 

agreement, and let me just add further that from the risk angle, 

Dodd-Frank resulted in the concentration of significant amount of 

clearinghouse risk and I am looking forward to working with you 

around this, but as much as clearinghouses have brought a great 

deal of safety and transparency to what was a shadow market, it 

is also important that Congress and regulators make sure we are 

not creating a new risk environment that would lead to another financial crisis as a result of concentration. So, could you speak a little bit more to those issues. 

Mr. MASSAD. Sure. So, the focus of the conversation is about 

these margin methodology issues, the methodologies we use to determine how much margin is collected from customers as well as 

10 

from the clearing members themselves and then posted to the 

clearinghouse versus how they do it. There are differences in how 

each regime works. But, as I say, we went through some analysis, 

because they felt at first their system was stronger than ours, and 

we actually did a lot of analysis to show that our system was collecting—on the customer side, was collecting and posting to the 

clearinghouse more. It was not costing the customers more, but it 

was, effectively, because we do what is called gross posting, you 

were making sure the clearinghouse was better protected. 

So, there are still a lot of little issues in that we are looking at, 

but hopefully, we have limited it to that set of issues, how margin 

is collected by the house members, meaning the clearing members 

themselves, how much they have to post, and how you treat, for example, house affiliates. So, these are pretty technical issues and 

the issue really goes to how much can we minimize differences in 

our two regimes to avoid any issue of regulatory arbitrage. 

Senator STABENOW. Thank you, Mr. Chairman. 

Chairman ROBERTS. Senator Perdue. 

Senator PERDUE. Thank you, Mr. Chairman, and thank you, Mr. 

Massad. 

First of all, I have to tell you, I am one of your biggest fans. I 

really appreciate what you are trying to do right now. You know, 

in my state, we have got a lot of end-users and they have been telling me over the last two years some of the draconian overreaches 

of the last few years of the CFTC. I realize what you are trying 

to do is find a balance, and I welcome that. I look forward to working with you to take care of some of these regulatory excesses. 

But, I have to put in perspective my question. I have a question 

on end-user here I want to get to, but it seems to me that we have 

had a series of situations in the United States history, in the last 

50 years, especially, where we have an economy and people, players in the economy, and we get a situation that causes a crisis, and 

then we have a draconian overreach in Washington. We saw it with 

Sarbanes-Oxley. We see it with Dodd-Frank. Now, we are trying to 

pull back and find a balance again in your area, and I applaud 

that. 

I am a little troubled that the measures of success are the 

amount of fines—I have to say that personally—but I hope that we 

will also get to a point where we talk about we get normal endusers back to a normal life of doing business that were no part of 

the draconian things that happened in 2008 and 2009. 

I have a question about the end-user definition. If you look up 

in Dodd-Frank, the Act itself, you will not find any definition. The 

closest you find is the end-user clearing exception, I believe. The 

CFTC’s regulations refer to the end-user clearing exception provision in Dodd-Frank to identify end-users. 

The problem with that is, it does not include everybody. It excludes dozens, maybe hundreds of end-user entities that use CTUs. 

You have provided a ‘‘no action’’ relief to end-users, and that is welcome. That is very much appreciated, and that is why I am speaking to that. It seems to me that you are trying to find a balance 

here to take care of the bad actors, but also not wrap up the bona 

fide people who are trying to use it properly. That is very much appreciated. 

11 

But, does ‘‘no action’’ relief really fix the underlying problem? Do 

we need to do something more statutorily? What really should be 

done to fix this thing permanently, in your opinion? 

Mr. MASSAD. I think ‘‘no action’’ relief is a very important tool 

in our tool kit and I think we have used it appropriately. But, we 

are also looking at this issue in other ways. For example, Senator, 

with respect to the rules on margin for uncleared swaps, we are 

making sure that does not—that requirement is not imposed on 

commercial end-user firms, which is Congress’s intent. We work 

with the bank regulators, because we are supposed to harmonize 

our rules with theirs, to make sure that was the case. We are looking at the consequences to end-users on some of our reporting requirements and lessening reporting requirements in certain areas, 

and again, doing that through rulemaking. 

So, I would be happy to visit with you further on particular concerns, but I think we are very focused on this issue and we are 

very focused on making sure that the regime we are trying to put 

in place here, which I think is a very good one in terms of bringing 

transparency and oversight to the swaps market, should, at the 

end of the day, make this market better for end-users. It should 

not burden them with inappropriate burdens and costs. 

Senator PERDUE. So, for future Chairmen of the CFTC, you think 

the current language is adequate to protect those end-users? 

Mr. MASSAD. Well, I would be happy to visit. If you are talking 

about particular provisions, I am not quite sure which provisions 

you are talking about, so I would be happy to visit with you on 

that. 

Senator PERDUE. That would be great. 

Thank you, Mr. Chairman. Thank you. 

Chairman ROBERTS. Senator Heitkamp. 

Senator HEITKAMP. Thank you, Mr. Chairman, and thank you, 

Ranking Member Stabenow, for the chance to have a few questions 

about an issue that a lot of people would not think the small state 

of North Dakota would be concerned about end-users. But my rural 

electric co-ops and my farmers every day use this as a risk management tool, and having appropriate end-user provisions is absolutely critical to that tool that is essential to the success of their 

organizations. I just want to applaud you for listening. I think that 

we have done some good work in educating who end-users are and 

what they need to do. 

But, I think there are also some outstanding issues relative to 

end-users that I just—it may be in the weeds a little bit, but these 

are the issues that, Mr. Chairman, we hear about. I want to discuss for a minute the 1.35 recordkeeping rule. You know, I have 

heard from folks back home that the requirement for maintaining 

records for all pre-trade communications, including iMessages and 

instant messages, can be burdensome for the brokers and may lead 

to end-users not being able to communicate easily with their brokers, even in immaterial communications. 

I know the Commission is in the process of finalizing some relief 

on this requirement for end-users. Can you discuss what you plan 

to include in the rule and what communications industry will be 

required to keep. 

12 

Mr. MASSAD. Certainly, Senator. Thank you for the question. 

What I tried to do shortly after taking office was the Commission 

had issued some relief here through no action and I said, we need 

to formalize that. Let us make it a rule. Basically, we had proposed 

a rule that was consistent with the ‘‘no action’’ relief, but then we 

invited comment on that rule. The proposal exempts people from 

keeping, like, these text messages and it reduces the burden on 

how records should be kept. But, we also invited comments on 

other aspects of the rule and we did get a lot of comments and we 

are thinking about that. 

I am particularly concerned about the issues you have raised 

with respect to small participants in this market. We need to make 

sure small participants in this market who do not necessarily have 

the systems in place all the time to easily keep a lot of records, we 

need to make sure they are not overly burdened. So, we are thinking about all those issues. Again, this is one of those where I want 

to take the time to make sure we get it right. 

Senator HEITKAMP. Right. I could not agree with you more, but 

to appreciate and understand that that communication is a critical 

part of truly understanding the transaction and we cannot in any 

way create a system where we would limit the ability to have communication. 

With that said, I think one of the great concerns that the American public has with the whole system of what happened in 2008 

and what has happened in the past is that all of the bad actors 

who went to the market who do things that they ought not to be 

doing do not ever seem to be prosecuted, do not ever seem to find 

their way into a criminal court. We see civil fines, but we do not 

see a lot of criminal activity. 

I recognize that the recordkeeping is essential to those prosecutions, and so I am wondering if you could discuss how the regulation has or has not been helpful in terms of creating cases and 

moving towards prosecution of bad actors. 

Mr. MASSAD. Well, certainly in just about any enforcement case, 

there is an extensive process of looking at records of transactions 

and records leading to transactions, which is why the rule is written the way it is. I think we have been very determined in our efforts not just to bring the civil actions that we can bring, but also 

to work with the criminal authorities. On any matter where we 

think there is a basis for criminal prosecution, we work very closely 

with Justice as well as with state prosecutors. 

Senator HEITKAMP. Just a quick question there. As you are working with the U.S. Attorneys’ offices and with the Department of 

Justice, this is an incredibly complicated area. Do you think a lot 

of times that the reaction may be, this is way too complicated for 

us, much less a jury, and how do we overcome that? 

Mr. MASSAD. Sure, there is sometimes that issue. These are complicated markets and complicated transactions, and a lot of these 

investigations, particularly today with the automation in our markets, require huge efforts to analyze data—millions, if not billions, 

of records, sometimes, of data and reconstructing that. That is a 

challenge. 

Frankly, there again, it is an issue of our own resources. If we 

can more easily look into these things and do more of the legwork 

13 

and thereby assist the criminal authorities, then it is much easier 

for them to step in. 

Senator HEITKAMP. Thank you, Mr. Chairman. 

Chairman ROBERTS. Senator Boozman. 

Senator BOOZMAN. Thank you. 

Mr. Chairman, we had the opportunity to visit before you went 

on your European trip and you expressed the importance of that. 

Can you—you alluded to it earlier, and you alluded to the margin 

methodology problems that we are having, recognizing clearinghouses, all these things which are so important. Can you characterize, were you happy with the trip? Then, also, is there anything 

that we can do as a committee, either through this committee or 

Financial Services, whatever, is there anything we can do to help 

you sort the problems out? 

Mr. MASSAD. Thank you for the question. Yes, I was pleased that 

we are making progress. I think there was a lack of information, 

a lack of understanding in a lot of these areas, and I testified before a committee of the European Parliament and met with individual members of the European Parliament as well as with the 

European Commission and really went over a lot of these matters 

in detail to explain why their assumption that differences in our 

two systems somehow meant that ours was riskier was dead 

wrong. In fact, if anything, I think ours is superior. But, the issue 

is just getting to equivalence. 

So, I think we narrowed the issues. I think we came up with an 

understanding on what we are going to do next. Let me see how 

that goes and then I would be happy to get back to you on whether 

Congress needs to do something. But, I really appreciate the support of this committee in making sure that we can achieve some 

of these cross-border issues, harmonization issues, in a way that 

still ensures American firms are competitive and customers are 

protected. 

Senator BOOZMAN. As a member of the Financial Stability Oversight Council, can you talk a little bit about what you are trying 

to do to ensure that any new regulatory proposals take into account 

the potential impact of new regulations on liquidity in the marketplace? 

Mr. MASSAD. Sure. Well, I think the Chairman raised the issue 

on the supplemental leverage ratio. That is not a—well, it is a relatively new regulation, but that is one where, I think, the FSOC 

is helpful because it establishes the relationships among the regulators. Right now, I am—we are discussing that issue with the 

OCC, the FDIC, and the Fed, again, because they have very legitimate goals that they are trying to achieve through the SLR. I appreciate and support those goals. But, we also have to make sure 

that when it comes to this cash margin, for example, that we are 

appropriately dealing with that so that we also achieve the goal of 

encouraging clearing. So, that is an example, I think. 

Senator BOOZMAN. Very good. 

Since Dodd-Frank, we have seen significant consolidation of futures commission merchants, and today, we have about half the 

number of FCMs serving farmers, ranchers, and other end-users as 

compared to just a few years ago. What is the impact of fewer 

FCMs on liquidity in the marketplace for end-users, and do you beVerDate Nov 24 2008 16:08 May 03, 2016 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 C:\USERS\MW42035\DESKTOP\DOCS\96178.TXT MICAH
14 

lieve that the consolidation that we have seen since Dodd-Frank 

has contributed to less liquidity in the marketplace for end-users? 

Mr. MASSAD. Thank you for the question, Senator. I am very concerned about this and actually asked my staff fairly recently to 

really do a deep dive and look at this. The downward trend in number of FCMs actually began well before Dodd-Frank. You can see 

it very clearly from 2005 on. But, at the same time, what was curious was the volume in our markets increased, and even the amount 

of customer funds was increasing. So, we had the number of FCMs 

going down, but the volume going up. So, we looked at that and 

realized that a lot of the decline in the number of firms was firms 

who were not even taking customer money. 

Now, there is still an issue here, I think, that we need to look 

at. We need to make sure that we are not ending up with too few 

firms. The concentration level of firms was high back then, meaning the number of firms that hold most of the customer margin. It 

was pretty high before. It is pretty high now. That has not really 

changed all that dramatically. But, we are still looking at this. I 

want to make sure, for example, that, again, smaller customers are 

still able to access these markets, it is not just the larger users. 

So, I think we need to do more work on it to really understand 

this. I think it is not just, though—I mean, there are a number of 

factors that affect this. The low interest rate environment affects 

this, you know. It affects the profitability of being in this business. 

So, there are a number of factors, but I would be happy to come 

back and visit with you after we have done some more study. 

Senator BOOZMAN. Good. Thank you, Mr. Chairman. 

Chairman ROBERTS. Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

Chairman Massad, nice to see you. Thank you for being here. As 

we have discussed, my interest in banks’ involvement and physical 

commodities, I would like to say a couple of things about that then 

ask you a question about something else. 

In March, Mr. McGonagle sent a letter to the London Metals Exchange, as scrutinizing its application as a foreign board of trade 

in the operation of the aluminum warehouses. This is a positive development in your agency’s oversight of the physical market. I appreciate your responsiveness and I hope that it continues, so thank 

you for that. 

I want to talk about something that you had discussed earlier. 

Your testimony set out the CFTC’s work to address the needs of 

commercial end-users. Using both new rules and administrative actions, it seems the CFTC has been able to respond where necessary 

and in a targeted way. Discuss the importance of letting CFTC address the more detailed regulatory issues, if you would. 

Mr. MASSAD. It is extremely important, Senator. I think it would 

be a mistake to try to legislate a lot of these things, to get into this 

level of detail, and the risks are the following. First of all, markets 

change. Markets evolve. Market conditions change and needs 

change. If you try to codify certain things into the law, then markets will react to that and they will change. You will not have the 

flexibility to respond quickly. 

The second thing is, typically, when you try to codify some of 

these things, you do not do it with quite the same nuance that we 

15 

might be able to do in a rule, and so you can very easily create unintended consequences and unintended loopholes. 

So, I think, in most of these areas, it is much better to let us try 

to address it through the rulemaking process or through other 

forms of administrative action. I welcome the input of this committee in terms of concerns that you want us to look at, but I 

would hope that we could continue to do it through the regulatory 

process. 

Senator BROWN. Thank you for that. You know, it has become a 

talking point every time there is any significant problem, whether 

it is a safety issue on a train or whether it is an economic implosion or almost an implosion of our economy, half a decade ago. The 

talking point is, we had an economic disaster and government overreached in a dramatic or heavy-handed way. That is sort of the 

talking point always. Problem here, the government overreached, 

we have got to find a way back. 

I think you have answered that question well, that you need— 

you obviously need nuance, you need to take steps that are prudent 

as you move on these things. Congress, particularly this Congress, 

would like to take some of these rules with a meat axe and write 

legislation to go in directions we probably do not want to go in, particularly with no nuance to it at all. 

Mr. Cota, who is testifying later, mentioned in his written testimony—in the next panel—the risks of creating new legislative loopholes or regulatory exclusions. Do you—talk—I know the answer is 

yes, so I will not make it that easy a question, do you agree with 

that. But, give us a couple of examples and be a little more precise, 

if you can— 

Mr. MASSAD. Sure. 

Senator BROWN. —on how that can be too far. 

Mr. MASSAD. I would be happy to. Well, let us take looking at, 

for example, the balance between the reporting that we would like 

to have on the swaps market and participants’ ability to hedge. 

One of the things we did administratively was we provided an exception to some of the reporting requirements in the case of a very 

illiquid market where a participant in that market came to us and 

said, if I have to report immediately, that will identify who I am 

in this market and make it harder for us to hedge. We looked at 

the facts, we looked at that particular market—it was a very, very 

narrow market, one kind of, I mean, particular tenor in terms of 

the time period that they were seeking to hedge, and we agreed 

with the concern and we addressed it. 

Now, if, for example, you say, well, you should have a rule on illiquid markets—you should define what an illiquid market is and 

you should define what the exception should be—that is just not 

a very pragmatic way to go, because the definition of what is illiquid is going to vary across the board in all these markets. It is 

going to change over time. You know, if more market participants 

start to come into a market for various reasons, well, it becomes 

less illiquid, and so then you do not need the exception. But, if you 

try to legislate something like that, you are going to create all sorts 

of issues and inconsistencies. 

Senator BROWN. Thank you, Mr. Chairman, and Mr. Chairman, 

thank you. 

16 

Chairman ROBERTS. The Chair is delighted to recognize the Senator from South Dakota, Senator Thune, but only remind him that 

he has an hour before his high noon. 

[Laughter.] 

Senator THUNE. Thank you, Mr. Chairman. I am delighted to be 

recognized by the Chairman, and I want to thank you for holding 

this hearing on regulatory issues impacting end-users. 

I think it is fair to say in agriculture today that the margins are 

slim to nonexistent, and that is not true just for farmers and 

ranchers, that is true for elevator operators and suppliers, and a 

critical component of any agricultural operation is risk management. But, we have got an awful lot of burdensome reporting requirements, unnecessary over-regulation, particularly in certain 

areas of Dodd-Frank implementation, and so there are folks who 

spend way too much time focusing on regulatory requirements and 

recordkeeping and not enough time on effective risk management. 

I hope that as we work through reauthorization this year, that we 

focus and get answers to questions about CFTC rulemaking over 

regulation and restrictive measures to end-users and, again, focus 

specifically on Dodd-Frank. 

Mr. Massad, throughout the development of Dodd-Frank, there 

were a number of Senators on this committee who expressed concern about global regulatory confusion ensuing if regulations were 

not well coordinated, and I think due to the number of regulations, 

the number of regulators around the world necessary to put into 

effect national implementation of these complex derivative provisions, these warnings now seem to be realized. In spite of assurances that global regulators were united, it has become obvious 

that these regulatory relationships are strained. 

CFTC was a first mover in many of these—many of their regulations, and in particular with regard to cross-border application of 

your regulations, the CFTC issued guidance rather than formal 

rulemaking. Why is that? 

Mr. MASSAD. Well, I was not at the Commission at the time, Senator, so—— 

Senator THUNE. I know you were not. 

Mr. MASSAD. —I do not know that I can go to how people made 

that decision. What I can tell you is that we are very focused on 

harmonizing the rules. I would note, also, that Congress did mandate that the rules be done in a year, basically, which did put the 

agency under tremendous pressure, and I think it is a credit to the 

staff of the agency that they worked hard to get the rules done. 

The issue of cross-border harmonization, I think, we need to put 

in perspective. Each—while the G–20 nations agreed to the basic 

principles they wanted to implement, it still falls to individual nations to do it. None of us—none of those nations are willing, for example, to delegate their authority. I am sure this Congress is not 

willing to delegate its authority, or our authority, to the Financial 

Stability Board or anyone else. It is our job to do it for our country. 

It is the European Parliament and the European Commission’s job 

to do it for Europe. Japan has to do it for Japan, and so on and 

so forth. 

Having said that, there has been tremendous progress, and I am 

happy to go through each of the areas where there has been 

17 

progress, and a lot of it—most of it has come from us. We have 

made, for example, substituted compliance determinations in a 

whole host of areas for several jurisdictions. Now, other jurisdictions have not because they have not gotten their rules done, in 

many cases. 

We are working very hard on this issue of clearinghouse recognition. It has been difficult. I could have agreed to it a year ago had 

I been willing to have our clearinghouses impose higher costs on 

the very people you are concerned about. So, that is why it has 

taken time. It has taken time to work through some of these issues. 

We did not want to impose higher margin costs on our participants—— 

Senator THUNE. Well, the—I am sorry. The SEC took a different 

approach, though, and has now twice proposed formal rules to address the global reach of their derivatives regulations. So, has the 

CFTC’s move to address cross-border matters through more expedient guidance really, in your judgment, resulted in advancing the 

goals of more transparency and better risk management, or has it 

created more of a regulatory impasse? 

Mr. MASSAD. Well, again, the guidance was done a while back. 

I can tell you what we are doing today. We are doing it through 

rules. For example, in the case of margin for uncleared swaps, we 

put out for public comment a proposal, and we are going to have 

a roundtable about this this afternoon and inviting public participation on this, as to what our approach should be in terms of the 

cross-border application of the rule on margin for uncleared swaps. 

We noted, for example, that there is an approach based on the 

guidance, but that may not necessarily be the right approach. 

So—— 

Senator THUNE. Did you—will your agency consider, though, or 

contemplate formal rulemaking to better—— 

Mr. MASSAD. We are doing it. 

Senator THUNE. —global coordination? 

Mr. MASSAD. We are doing it already. We are doing it in the area 

of margins. We are doing it in the area of reporting. So, we are 

doing it in a number of areas, and we are aware of what the SEC 

is doing. We are looking at what they are doing and working with 

them. 

Senator THUNE. All right. My time has expired. Thank you, Mr. 

Chairman. 

Chairman ROBERTS. Senator Casey. 

Senator CASEY. Thanks very much, Mr. Chairman. We are grateful you are here and thanks for your service. Difficult subject matter and a difficult time to serve. 

I wanted to ask you about these affiliates of the so-called centralized treasury units in terms—really, a two-part question, and that 

is really all I have for today. The relief that has been granted, can 

you walk through how that process works? That is kind of question 

number one. Then, number two, is it having the intended effect, or 

can you assess the effect it is having? 

Mr. MASSAD. Thank you, Senator. I think it is. What we did was 

we made it clear that, for example, commercial end-users are entitled to exemptions from the clearing mandate, from the trading 

mandate, but a lot of companies, especially large companies, will do 

18 

their financial transactions, including their swaps, through what 

we refer to as a treasury affiliate. It is essentially a special purpose 

subsidiary that only engages in financial transactions. Because it 

only engages in financial transactions, there was a risk that it 

could be viewed as a financial entity rather than as part of an enduser. So, we made that clear. 

We are continuing to look at this issue. There was an issue that 

came up that one of the auto companies asked us about for clarification on a related point. We issued that clarification about a 

week or two ago. We are looking at the issue, also, in terms of the 

rule on margin for uncleared swaps, which exempts commercial 

end-users, and we will, again, make sure that works from the 

standpoint of how large companies today organize their operations. 

So, I think we are very focused on this. There is often a lot of 

nuance and detail to it, and that is why, again, I think it is best 

to do it through the regulatory process. 

Senator CASEY. So, I guess the assessment you—I do not want 

to put words in your mouth, but these are challenging, but you 

have been able to manage—— 

Mr. MASSAD. Absolutely. Yes, sir. 

Senator CASEY. Thank you very much. 

Mr. Chairman, I am giving back two minutes and 49 seconds. 

[Laughter.] 

Chairman ROBERTS. We will bank that for you, Senator Casey. 

Senator STABENOW. We will bank that, yes. 

Chairman ROBERTS. Senator Klobuchar. 

Senator KLOBUCHAR. Thank you, Mr. Chairman. I thought Senator Casey was giving it to me, but that is okay. 

[Laughter.] 

Senator KLOBUCHAR. Thank you so much, Mr. Chairman, for 

being here, and thank you to our Chairman and Ranking Member 

for holding this hearing. 

As Chairman Massad, for a long time, years before you had this 

job, I have worked with the CFTC on the issue of position limits, 

on oil speculations, and I look forward to continuing that work. I 

also have been focused on the issue which I know the Chairman 

asked about of the end-users and this differentiation between people who are in the financial sector and then people who actually 

are end-users, like farmers and rural energy co-ops, manufacturers, 

and people who are doing things like buying oil at a certain price, 

or farmers who are buying other products at a certain price. So, 

those have been my major focuses and I am glad we were able to 

get this end-user issue resolved at the end of the year. 

I think my first question would be about how in your testimony 

you stress the importance of all the actions that have been taken 

to make the market safer since 2008, you have greater ability now 

at the CFTC to regulate swaps in the derivatives market. From 

your perspective, 11 months on the job, what are the biggest challenges you face? 

Mr. MASSAD. Well, the biggest challenge is resources. There is a 

lot more we should be doing. There is a lot more areas where we 

simply cannot get to because of the resources. We cannot respond 

to market participants as quickly as we would like. We cannot address a lot of their concerns. We cannot engage in the oversight of 

19 

some of the large clearinghouses. We cannot do examinations as 

frequently. We do not have enough resources to look at cybersecurity, which is perhaps the biggest single challenge for us today. 

Senator KLOBUCHAR. Have any of my colleagues asked you about 

the cybersecurity issue. 

Mr. MASSAD. No. 

Senator KLOBUCHAR. Okay. Well, when we talk about those resources, and I am sure you are concerned about budget proposals 

that would erode your resources even more—— 

Mr. MASSAD. Mm-hmm. 

Senator KLOBUCHAR. —okay, and is the budget that has been 

proposed in the Senate, does that make cuts to the CFTC? 

Mr. MASSAD. I do not know that I have seen a number yet for 

us. 

Senator KLOBUCHAR. Okay. All right. Well, we should look at 

that. 

On the cybersecurity side, it has, unfortunately, as we know, 

been routine to see companies victims of cybersecurity, and thus 

their customers, whether it is Sony, whether it is Home Depot, 

whether it is what we saw in Minnesota with Target, do you think 

that the exchanges and clearinghouses are putting enough emphasis on data security as part of their business plans, or are they just 

waiting for something to happen, and what are the disclosure requirements for the exchanges and clearinghouses in the event of a 

cyber-attack? What I am really getting at is how and when will 

people know when there has been a breach? 

Mr. MASSAD. Well, I guess I would answer it this way. I would 

say, first of all, the exchanges and the clearinghouses are taking 

this very seriously. I know you are going to have Terry Duffy shortly, and he and I have had a number of conversations about this. 

But, this is a huge concern for everyone today, not just financial 

companies, but all sorts of companies. There is a lot of work going 

on. 

But, we are looking at, is that enough, how can we add value 

here to this process, and one of the things we are looking at, for 

example, is we do not have the resources to do testing ourselves, 

but we want to make sure that clearinghouses and exchanges are 

doing enough testing on their own, whether it is what we call control testing, vulnerability testing, or penetration testing, where you 

really have someone who tries to hack your system and you push 

it until the point where you succeed in hacking so you can figure 

out where the vulnerabilities are. 

So, that is one of the things we are looking at, whether we can 

contribute by maybe setting standards of best practices that firms 

should follow when they do their testing. 

Senator KLOBUCHAR. Yes. 

Mr. MASSAD. We are also working with other governmental agencies here. This is obviously not something that we can do on our 

own. We work with DHS and the FBI and the other financial regulators on that. 

Senator KLOBUCHAR. Okay. Could I just ask you one more question about something I raised at the beginning, and that is speculative trading’s effect on the commodities market, notably gas, oil, 

wheat in the past. Last time we were here, we talked about how 

20 

Parnon Energy and Arcadia manipulated the crude oil market and 

now the CFTC has just filed an enforcement action against Kraft 

and its parent company for manipulation of the cash wheat and 

wheat futures market. I am also concerned that end-users like our 

small farmers and rural energy co-ops might not be able to conduct 

their business because of some of the rules which are well intended, of course. 

So, what is happening with all of that? I know you have looked 

extensively at the speculation issue and how can these rules best 

work for everyone. 

Mr. MASSAD. Well, thank you for the question. Obviously, I do 

not want to comment on particular enforcement proceedings, but 

let me just comment generally. 

You know, I think, again, this comes back to resources, quite 

frankly, because these markets have changed. They have become 

far more electronic, far more automated. The days when we could 

watch trading pits and see if someone pulled an earlobe or something to determine whether there was manipulation are long gone. 

Now, today, we have to look at reams and reams of records—I 

mean, we are talking about billions of records here for a particular 

case, sometimes—to reconstruct trading patterns and to determine 

if there is a problem. We work, again, very closely with the exchanges. They are the front line of defense on these things. They 

have increased their resources in terms of monitoring trading behavior. So, we work very closely with them, also. 

But, what is needed here more than anything else is the resources so that we can invest in the information technology systems. Senator Stabenow referred to we cannot even keep up with 

the markets, much less get ahead. 

Senator KLOBUCHAR. Thank you very much. I appreciate it. 

Thank you, Mr. Chairman. 

[Pause.] 

Chairman ROBERTS. I would like to yield at this point and recognize Senator Boozman for one additional question. 

Senator BOOZMAN. I was just curious, Mr. Chairman, you men- tioned that you had fined $2.5 billion or whatever. How much do 

we actually collect of that? 

Mr. MASSAD. I can check on that. I think we collected 2.3 of that. 

Senator BOOZMAN. Okay. So, the collection rate—— 

Mr. MASSAD. On that. 

Senator BOOZMAN. —under your regime is—— 

Mr. MASSAD. Yes. Now—— 

Senator BOOZMAN. —is pretty robust, or—— 

Mr. MASSAD. Well, to be perfectly thorough on this, when you 

have settlements and fines against institutions, larger institutions, 

you typically collect more, or you collect it. We have a lot of cases— 

we have a lot of small cases, Ponzi schemes, precious metal frauds. 

A lot of these operators go out of business before we can catch them 

sometimes, or before we can reach the judgment or the settlement. 

It is much harder there to collect. 

Senator BOOZMAN. I guess if we are going to use that as a measure of success, then we do need to go further and actually talk 

about that perhaps a little bit more. 

Thank you, Mr. Chairman. 

21 

Mr. MASSAD. I am happy to give you all those statistics. 

Chairman ROBERTS. Thank you, Senator. 

Mr. Chairman, before you go, we are tasked with reauthorizing 

the CFTC—that is why we are holding this hearing—as is the 

House of Representatives. We want to work with you in a very bipartisan way and with the Commission’s help. So, my question is, 

will you commit to working with us, along with your staff and 

other Commissioners, in a productive fashion? 

Mr. MASSAD. Absolutely, Senator. 

Chairman ROBERTS. Great. Thank you so much. 

Mr. MASSAD. Whatever you need. 

Chairman ROBERTS. The distinguished Senator from Iowa has arrived and I would be happy to recognize him at this point. Senator 

Grassley. 

Senator GRASSLEY. You know, oversight is a big part of my work 

and I wanted to say that Senator Johnson and I have raised concerns about CFTC’s decision to charge the Inspector General’s Office $331,000 to cover overhead. I question whether the CFTC 

Chairman may determine if and to what extent funds may be removed from the IG’s appropriation for any purpose that would 

amount to nearly 13 percent of their budget, funds that could otherwise pay for additional staff salary. 

During an April 17, 2015 phone call between our offices and the 

CFTC staff, we requested documents to help us better understand 

overhead charges for that office and specifically requested the 

amounts of overhead charged the IG in the past, the CFTC OIG 

budget request for fiscal year 2015, and the request submitted to 

OMB for fiscal year 2015 in the amount of overhead charges per 

office. We have not yet received those documents, so I would like 

your assistance that this information will be made available to Senator Johnson and me within a week. Is that possible? 

Mr. MASSAD. I see no reason why we cannot do that, Senator. 

Senator GRASSLEY. Thank you, Mr. Chairman. 

Mr. MASSAD. Can I just—— 

Senator GRASSLEY. Yes. 

Mr. MASSAD. —if I may, though, just say a word or two about 

it. 

Senator GRASSLEY. Of course, you can. 

Mr. MASSAD. My understanding of what we do here is that the 

IG gives us a budget and we then add an amount for overhead and 

then that sum is what we submit as the budget request. In fact, 

the IG was given even more than the sum of what the IG requested 

and what that overhead charge is. 

I would also point out that the overhead charge is a very simple 

calculation. It does not even—it is not even fully loaded. All it is, 

is a percentage, a fraction, if you will, of our leasing and certain 

other kind of overhead charges that is based on number of FTEs. 

But, we do not charge the—we do not even charge the IG for information technology or any of our—a lot of our other services. 

Senator GRASSLEY. Well, I appreciate your explanation, and if 

you give us these documents, then we will be able to satisfy ourselves. 

Mr. MASSAD. Certainly. 

Senator GRASSLEY. Thank you very much. 

22 

Thank you, Mr. Chairman. 

Chairman ROBERTS. Okay, and thank you, Mr. Chairman. 

I would like to welcome our second panel of witnesses before the 

committee. 

First, we have Mr. Terry Duffy, Executive Chairman and President of the CME Group. Mr. Duffy joins us from Chicago, where 

he is the Executive Chairman and President of the CME Group. 

Mr. Duffy has served in his role as President since 2012 and has 

been the Executive Chairman since 2006, when he became an officer of the company. Terry, thank you for being here today and I 

look forward to your testimony. 

Mr. Bruce Barber is the General Manager of Oilseed Risk Management, Archer Daniels Midland Company in Forsyth, Illinois, 

testifying on behalf of the Commodity Markets Council, CMC. Mr. 

Barber also comes from Illinois, is the General Manager of Oilseed 

Risk Management for the Archer Daniels Midland Company. He 

has been in the grain business for many years and is here today 

on behalf of the Commodity Markets Council. This is Mr. Barber’s 

last official act, as he will be wrapping up a 33-year career with 

ADM at the end of this month. Bruce grew up on an Iowa farm. 

He graduated from Iowa State. Nothing wrong with that. 

[Laughter.] 

Chairman ROBERTS. I am just remembering all those last-minute 

basketball games where they defeated K–State, but at any rate—— 

[Laughter.] 

Chairman ROBERTS. He grew up on an Iowa farm, graduated 

from Iowa State, and has traded wheat, corn, soybeans, soybean 

meal, soybean oil from locations all over the Midwest. He has spent 

the last two years trading for ADM in Geneva, Switzerland. Bruce 

Barber, congratulations and welcome home. 

Mr. BARBER. Thank you, Mr. Chairman. It is good to be home. 

Chairman ROBERTS. We have Mr. Jeff Walker, Senior Vice President and Chief Risk Officer, Alliance for Cooperative Energy Services from Carmel, Indiana. Mr. Walker is joining us from Carmel, 

where he serves as Senior Vice President and Chief Risk Officer for 

the Alliance for Cooperative Energy Services. Mr. Walker leads 

ACES’s Energy Risk Services, including trading, control, credit, 

contract administration, and regulatory and corporate development. 

Thank you for making the trip, sir. We look forward to hearing 

your testimony. 

Mr. Michael Bopp, Partner at Gibson, Dunn and Crutcher, LLP, 

Washington, DC, testifying on behalf of the Coalition for Derivatives End-Users. Mr. Bopp is a partner at Gibson, Dunn and 

Crutcher here in Washington. He represents the Coalition for Derivatives End-Users. The Coalition represents the views of more 

than 270 end-user companies that employ derivatives primarily to 

manage risk associated with their businesses. Thank you, sir, for 

being here today, and we look forward to your participation. 

We have Mr. Sean Cota, the co-founder of Commodity Markets 

Oversight Coalition, Bellows Falls in Vermont. Mr. Cota is the cofounder of the Commodity Markets Oversight Coalition, which represents the commodity-dependent businesses in the transportation, 

energy, and agriculture sectors. He has nearly four decades of experience in the downstream petroleum industry, including more than 

23 

17 years as president of his family’s successful heat, oil, propane, 

and motor fuels company in Vermont, and we look forward to your 

testimony. 

We will start it off with Mr. Duffy. 

STATEMENT OF TERRENCE A. DUFFY, EXECUTIVE CHAIRMAN 

AND PRESIDENT, CME GROUP, INC., CHICAGO, ILLINOIS 

Mr. DUFFY. Chairman Roberts, Ranking Member Stabenow, 

thank you for having me today. As the Chairman said, I am Terry 

Duffy, the Executive Chairman and President of the CME Group, 

and I appreciate the opportunity to offer our views on the CFTC 

reauthorization. 

It is critically important to structure regulation to protect the integrity of our markets. They need to be available to meet the hedging and risk transferring needs of end-users. These include producers and consumers of agriculture and energy products, as well 

as businesses facing interest rate, equity, and currency risks. 

The CFTC, under the leadership of Chairman Massad, has appropriately reformed several regulations that needlessly limited 

end-user risk management on regulated markets. We applaud 

these recent actions. They will reduce the burdens associated with 

excessive residual interest charges that we have discussed before 

at this committee and redundant trade reporting and recordkeeping. This is a good start, but other problematic proposals offered after Dodd-Frank need to be reexamined. 

For example, we endorse the end-users’ call for more flexible 

hedging treatment, especially, as the Chairman mentioned earlier, 

anticipatory needs of hedging. We also urge the CFTC to continue 

the practice of permitting exchanges to administer hedge exemptions consistent with the needs of end-users. 

We also support setting limits based on current deliverable supply data. The use of current data will ensure an accurate depiction 

of what the actual deliverable supply is. It also eliminates the basis 

for unfounded claims that financially settled look-alike contracts 

should be given five times higher limits than underlying physically 

settled contracts. Different limits for equivalent contracts distort 

transaction flow and the settlement process. 

Another topic that will impact the end-users is that European 

regulators refuse to recognize that U.S. regulation is equivalent to 

that of the European Union regime. Under European law, U.S. 

clearinghouses and exchanges like CME must be recognized by the 

European regulators. This recognition can only happen if the European Commission first determines that the regulations in the 

United States are equivalent to European Union regulations. Without recognition, European clearing firms and market participants 

will be subject to prohibitive costs if they clear or trade in the U.S., 

or they may be denied access to U.S. clearinghouses and exchanges 

altogether. 

Chairman Massad has been a strong leader in his negotiations 

with his European counterparts. He testified, as he said earlier, effectively before the European Parliament just last week. I hope he 

will be successful in reaching an agreement that will allow U.S. 

markets to be recognized by the European Union the way they parVerDate Nov 24 2008 16:08 May 03, 2016 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 C:\USERS\MW42035\DESKTOP\DOCS\96178.TXT MICAH
24 

ticipate in ours without compromising the robust risk protections 

of the United States regulatory regime. 

Another concern that will add additional harm to end-users is 

the supplemental leverage ratio rule imposed under the Basel III 

by European central bankers and by our own U.S. Federal Reserve. 

This rule will permit bank regulators to impose punitive capital 

charges on clearing firms that support activities of end-users. This 

rule imposes unwarranted capital charges that do not recognize the 

netting and bankruptcy remoteness offered by clearing. It will 

make it difficult or impossible for small end-users to find a clearing 

member firm so they can continue to facilitate their risk management needs. 

I want to thank you, Mr. Chairman, Ranking Member Stabenow, 

for the opportunity, and I look forward to answering your questions. 

[The prepared statement of Mr. Duffy can be found on page 67 

in the appendix.] 

Chairman ROBERTS. We thank you. 

Mr. Barber. 

STATEMENT OF BRUCE BARBER, GENERAL MANAGER, OILSEED RISK MANAGEMENT, ARCHER DANIELS MIDLAND CO., 

FORSYTH, ILLINOIS, ON BEHALF OF THE COMMODITY MARKETS COUNCIL 

Mr. BARBER. Chairman Roberts, Ranking Member Stabenow, and 

members of the committee, thank you for the opportunity to testify 

on behalf of the Commodity Markets Council to discuss the regulatory burdens impacting end-users and market liquidity as they 

relate to reauthorization of the CFTC. 

I am Bruce Barber of Archer Daniels Midland. For more than a 

century, the people of ADM have transformed crops into products 

that serve the vital needs of a growing world. Today, we are one 

of the world’s largest agricultural processors and food ingredient 

providers, with more than 33,000 employees serving customers in 

more than 140 countries. 

As Congress seeks to once again reauthorize the CFTC, hedgers 

of agricultural commodities and energy products are being asked if 

we are better off in today’s regulatory environment compared to the 

days before Dodd-Frank. The direct answer is no. I would point out 

that during the financial crisis, no exchange, DCM, clearinghouse, 

or commodity end-user of derivatives was bailed out with taxpayer 

money. 

Despite our best efforts, what I can tell you is that our compliance costs are up substantially. The compliance expenditures for 

ADM Investor Services, ADM’s FCM, have doubled in the past five 

years. 

Chairman Massad has an understanding of our concerns and 

CMC is appreciative of the Commission’s improved and appropriate 

emphasis on end-user issues during his tenure. This recognition indicates that some of these rules have not been well crafted and 

have the potential to do harm, particularly to end-users. Many 

CMC members would describe this situation as an example of process failure. During this reauthorization process, we would ask this 

committee to focus its efforts on the contrast between the CongresVerDate Nov 24 2008 16:08 May 03, 2016 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 C:\USERS\MW42035\DESKTOP\DOCS\96178.TXT MICAH
25 

sional intent of Dodd-Frank’s Title VII versus today’s reality of how 

it is being implemented in an effort to address this process failure. 

A multitude of new CFTC rules have burdened end-users and 

commercial participants with additional regulatory costs. These 

will ultimately be passed on to producers and consumers as they 

work their way through the supply chain. There will also be an impact on market liquidity, which will further raise the cost of risk 

management and, ultimately, the cost of finished agriculture and 

energy goods. In other words, if Dodd-Frank is not implemented as 

Congress intended, this law will hurt the people that it was intended to help. 

Since President Obama signed Dodd-Frank, the Commission has 

issued 274 ‘‘no action’’ letters, 20 interpretative letters, and 64 exemptive letters, all providing different levels of regulatory relief to 

CFTC rules. This compares to 201 ‘‘no action’’ letters during the 

decade prior to Dodd-Frank. 

As Congress moves to reauthorize the CFTC, the CMC urges this 

committee to address the concerns of end-users, which are more 

fully described in my written testimony. In brief, the five key 

issues are: Reporting requirements set out in Rule 1.35; updating 

deliverable supply estimates that will serve as the baseline for position limits determinations; getting the bona fide hedging definition right so that it recognizes all the myriad types of risk that 

end-users must hedge; the automatic drop in swap deal de minimis 

threshold; resolution of international regulatory issues, including 

U.S.-E.U. equivalence and the Basel III supplemental leverage 

ratio. 

To conclude, the swaps market reforms in Dodd-Frank were not 

required because of problems in physical commodity markets. Commercial end-users of agriculture and energy futures had no role in 

creating the financial crisis. Today, agriculture and energy endusers are faced with thousands of pages of new CFTC rules, followed by a multitude of letters issued by the Commission to clarify 

rule language, extend compliance dates, and provide temporary ‘‘no 

action’’ relief. 

The problem is not just that complexity and regulatory uncertainty adds unnecessary costs, it is that uncertainty via additional 

regulation of the risk management tools that commodity market 

participants utilize actually creates risk where it did not previously 

exist. CMC members mitigate risks by hedging. The fact that future regulation may determine that the risk management methods 

we have cited here today may no longer be considered hedging is 

of enormous concern and is an example of where risk could be created. 

When regulatory initiatives lack clarity or evolve to be at crosspurposes with the core principles on which the Commission was 

founded, CMC members are compelled to reach out to this committee for help. 

Thank you for this opportunity to testify. We look forward to continuing to work with the committee to strike the right balance. I 

look forward to your questions. 

[The prepared statement of Mr. Barber can be found on page 40 

in the appendix.] 

26 

Chairman ROBERTS. Mr. Barber, thank you very much for an excellent statement. 

Mr. Walker. 

STATEMENT OF JEFFREY L. WALKER, SENIOR VICE PRESIDENT AND CHIEF RISK OFFICER, ALLIANCE FOR COOPERATIVE ENERGY SERVICES, CARMEL, INDIANA 

Mr. WALKER. Chairman Roberts, Ranking Member Stabenow, 

thank you for inviting me to testify today on the regulatory burdens impacting end-users and market liquidity. I am Jeff Walker, 

the Chief Risk Officer for Alliance for Cooperative Energy Services, 

or ACES for short. 

ACES is owned by 21 not-for-profit electric cooperative power 

supply members who use ACES’ commodity service to participate 

in the wholesale energy markets. Not only are ACES’ member-owners commercial end-users, but they are also ultimately owned by 

the retail electric consumers they serve in 27 states, including Arkansas, Colorado, Georgia, Indiana, Iowa, Kansas, Kentucky, Minnesota, Mississippi, North Carolina, and Ohio. ACES is 

headquartered in Carmel, Indiana, and has office operations in 

Minnesota, North Carolina, and Arizona. 

U.S. consumers expect some volatility in the price of gasoline 

they pay at their local gas pumps from week to week, but when 

consumers get their monthly electric bill, they have always expected more price stability. Sometimes we can use physical transactions to lock in energy prices. However, financial transactions 

must also be used, when appropriate, to lock in prices to manage 

the volatility of the commodities our members use to produce and 

serve electricity to consumers. 

Since 2010, the Dodd-Frank Wall Street Reform Act and dozens 

of new CFTC regulations and interpretations have impacted our 

energy commodity transactions by adding significant regulatory 

burden on energy market end-users doing business on Main Street, 

not Wall Street. I will take a moment to highlight some of the challenges our electric cooperatives have faced under Dodd-Frank. 

In 2010, CFTC stated in a rulemaking that it would not provide 

a bright line test for compliance with its Dodd-Frank regulations 

because of concerns that doing so would provide a road map for 

evasion to market participants. However, this same approach has 

resulted in regulations that are vague and ambiguous, making understanding such regulations costly and compliance by end-users 

confusing, time consuming, challenging, and very expensive. 

Second, in 2012, CFTC imposed an entirely new set of obligations 

requiring end-users to keep records of pre-trade written communications. Prior to Dodd-Frank, only fiduciaries serving market customers and holding customer funds were burdened this way. 

Today, end-users subject to Regulation 1.35 get saddled with much 

more onerous and non-standard record retention periods, not only 

for pre-trade communications and financial derivative records, but 

also for all of their related physical commodity commercial activity. 

Even worse, this onerous burden may be overlaid on the entire 

business dealings of an end-user’s jurisdictional activities, even 

aside from the direct access trading venue that caused them to be 

subject to Regulation 1.35. 

27 

Third, Dodd-Frank has brought about an overlap of dual regulation by two federal agencies, the Federal Energy Regulatory Commission and the CFTC, of certain physical commodity transactions, 

namely options that, when exercised, are fulfilled by one party delivering a physical commodity to the other party. Furthermore, it 

is commonplace in the energy markets to have transactions that 

combine both jurisdictional and non-jurisdictional attributes together. For example, fixed volume forward contracts will often include a layer of volume flexibility called embedded optionality in 

order to enable an end-user to balance non-storable supply with 

variable demand in real time. 

In 2012, CFTC adopted a complex set of interpretations to determine whether or not hybrid transactions are jurisdictional swaps, 

in the form of a seven-part test. So, if you can thread all seven needles with a single strand, your hybrid transaction is not a swap, 

but that seventh needle can be a show stopper. 

Finally, CFTC’s 2013 proposed rule for speculative position limits 

places more unnecessary burdens on end-users of physical energy 

commodities and related swaps. Very narrow bona fide hedge exemptions to position limits are proposed by CFTC. End-users were 

told they can only hedge their commercial risk using hedges that 

are also bona fide for traders. They are also viewed as potential 

market speculators and having to monitor their positions on a daily 

and intra-day basis, provide precise plans and ten-day notices before hedge exemptions can be deployed, and submit reports to 

CFTC daily and monthly when they are deployed. 

Moving forward, we would like Congress and the CFTC to address the challenges discussed in this testimony, whether legislatively or administratively, to ensure that end-users are not treated 

like they were the cause of the 2008 financial crisis. We look forward to providing any information that would be helpful to the 

committee as it addresses CFTC reauthorization. We are supportive of reauthorization, but must respectfully request that the 

CFTC narrow the scope of its rules to remove the significant and 

unnecessary burdens on end-users. 

Thank you for the opportunity to testify. I would be happy to answer any questions you may have. 

[The prepared statement of Mr. Walker can be found on page 95 

in the appendix.] 

Chairman ROBERTS. Thank you, Mr. Walker. 

Mr. Bopp. 

STATEMENT OF MICHAEL D. BOPP, PARTNER, GIBSON, DUNN 

AND CRUTCHER, LLP, WASHINGTON, DC, ON BEHALF OF THE 

COALITION FOR DERIVATIVES END-USERS 

Mr. BOPP. Chairman Roberts, Ranking Member Stabenow, other 

members of the committee, I am Michael Bopp, a partner at the 

law firm Gibson, Dunn and Crutcher, and counsel to the Coalition 

for Derivatives End-Users. I want to thank you for inviting the Coalition to be a part of this hearing. 

We represent hundreds of end-users from across the economy 

that employ derivatives to manage everyday business risks and we 

support regulation that promotes economic stability and transparency without imposing undue burdens. We believe that imposVerDate Nov 24 2008 16:08 May 03, 2016 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\USERS\MW42035\DESKTOP\DOCS\96178.TXT MICAH
28 

ing unnecessary regulation on derivatives end-users who did not 

contribute to the financial crisis restricts job growth and hampers 

U.S. competitiveness. 

End-users applaud Congress’s passage earlier this year of legislation providing them relief from mandatory initial and variation 

margin requirements and we are grateful to the 17 members of this 

committee who opposed an amendment that would have stripped 

the end-user margin bill from the Terrorism Risk Insurance Act 

legislation to which it was attached. 

The Coalition also appreciates and supports the Chairman’s introduction of the centralized treasury unit, or CTU, bill, S. 876, 

which would prevent end-user companies from being denied use of 

the end-user clearing exception in Dodd-Frank drafted specifically 

for them. We thank Senators Collins and Klobuchar for introducing 

the same bill last Congress. 

Today, the Coalition would like to focus on three areas where we 

believe Congressional attention would help address inefficiencies 

and unnecessary expense. 

One issue is capital and liquidity requirements. Excessive capital 

requirements, including the net stable funding ratio and other outstanding Basel capital reforms, threaten to eviscerate the benefits 

of the margin legislation that was passed in January. As the cost 

of those capital requirements is passed on from banks to end-users, 

end-users are faced with a decision of whether to forego risk mitigation altogether, to enter into an imperfect hedge, or to pay substantially increased hedging costs. With every choice, the end-user 

faces the possibility of being competitively disadvantaged against 

foreign competitors. 

Another issue is cross-border market fragmentation. International harmonization is of great and growing importance and is 

particularly relevant for derivatives end-users. For the many that 

have affiliates located around the world and subject to multiple 

regulatory regimes, inconsistencies lead to increased costs, confusion, duplication, and decreased liquidity. A good example of this 

is a lack of consistent data and reporting standards across jurisdictions. In your oversight of the implementation of the Dodd-Frank 

Act, we urge you to encourage U.S. regulators to work with foreign 

regulatory regimes to recognize equivalence between jurisdictions 

using an outcomes-based analysis and with the interests of endusers in mind. 

A third and perhaps most important issue involves our use of 

centralized treasury units. Many non-financial end-users employ 

centralized treasury units to reduce risk by having a single entity 

centralize and net the hedging needs of all of its affiliates. In fact, 

nearly half of the respondents to a Coalition survey indicated they 

use CTUs to execute over-the-counter derivatives. Let me take a 

moment to explain. 

Everyone should have a slide titled ‘‘Centralized Treasury Units,’’ 

which I will refer to for illustration. In the hypothetical, ABC Corporation has two affiliates that have hedging needs. Instead of each 

affiliate going to the market independently to hedge its risk, they 

trade through ABC Corporation’s CTU. The advantages here are 

many, but I will mention two. 

29 

First, reduced market exposure. Because the ABC Corporation 

affiliates both need to hedge interest rate risk, the CTU is able to 

net those exposures and make only one trade with a bank 

counterparty. The alternative would have been for each affiliate to 

enter its own trade with a bank, thus doubling ABC Corporation’s 

overall exposure to the bank. 

Second, economies of scale. ABC Corporation can centralize its 

derivatives expertise in the CTU instead of spreading it among its 

affiliates and can enter into just one legal, or ISDA, agreement 

with the bank counterparty instead of each affiliate entering into 

its own contract. In our example, there are only two affiliates that 

have need of reducing risk through hedging, but imagine a company with 200 such affiliates, which is not uncommon. The economies and savings become very substantial. 

Why does this matter? Because CTUs are financial entities and 

the end-user clearing exception only applies to non-financial entities. You might ask, why does Dodd-Frank not look through the 

CTU to the affiliate to determine whether the clearing exception 

applies? That is an excellent question. Unfortunately, the answer 

is, it does not for the type of CTUs end-users tend to employ. 

S. 876 simply looks through the CTU to the affiliate whose risk 

is being hedged, and if the affiliate could hedge its risk and qualify 

for the end-user clearing exception, then the company will not be 

denied the exception simply because it uses a CTU. It is a simple, 

narrowly tailored solution that we urge this committee to approve. 

Thank you, and I am happy to answer any questions you may 

have. 

[The prepared statement of Mr. Bopp can be found on page 53 

in the appendix.] 

Chairman ROBERTS. Well, thank you, Mr. Bopp. I am sorry the 

Chairman left. 

Mr. Cota. 

STATEMENT OF SEAN O. COTA, CO–FOUNDER, COMMODITY 

MARKETS OVERSIGHT COALITION, BELLOWS FALLS, 

VERMONT 

Mr. COTA. Chairman Roberts, Ranking Member Stabenow, members of the committee, the Commodity Markets Oversight Coalition 

appreciates the opportunity to provide input as you begin work on 

CFTC reauthorization. 

The CMOC is a nonpartisan alliance of thousands of businesses, 

commodity-dependent businesses that rely on secure, transparent, 

and accountable futures. Options and swaps markets as a hedging 

and pricing discovery tool are critical to that. A list of organizations 

that endorse my testimony can be found in my written statement. 

I would like to ask that the Owner-Operator Independent Drivers 

Association and the Industrial Energy Consumers of America be 

added to that list. 

Chairman ROBERTS. Without objection. 

Mr. COTA. I have worked decades and 17 years as the president 

of my family company, which markets home heating oil, motor 

fuels, and most importantly, biofuels, in greater Vermont. Hedging 

is a part of that business, of which I was the manager of that hedging and gave me experience over the decades that I participated in 

30 

that. It is critical in our business, as a cyclical business that has 

large variance because of temperature, in how to hedge the various 

risks that come in with futures contracts. 

We encourage the committee to use the reauthorization to 

strengthen the protection that hedgers have and build upon these 

key reforms that are in Dodd-Frank. These reforms relative to the 

volatile conditions and opaque markets that existed prior to DoddFrank have increased the confidence in these markets in the commodity dependent businesses that we have. 

Over the last five years, volatility has declined considerably for 

many of the commodities by 40 percent or more. There are three 

top things that Congress can do to ensure that the CFTC continues 

to serve and protect small hedgers and commodity dependent businesses. 

First and foremost, you should fully fund the CFTC at the $322 

million level requested for fiscal year 2016. We have seen in recent 

years these markets affect the lives of every American. The CFTC 

has done its best to oversee these markets, given its historically inadequate resources. As you have heard from Chairman Massad, the 

CFTC’s collection of civil penalties has increased over twenty-fold 

over the last five years. This is many multiples of what their budget is. Going forward, additional funding will be necessary for the 

CFTC to continue to police and prosecute manipulation, to monitor 

constantly evolving and ever changing markets. Trading practices 

change. Technologies change. Threats like cyber-terrorism and 

cyber-espionage are critical and they need the funding to do that. 

Second, Congress should increase the cap on penalties for fraud 

and manipulation. Individual penalties have become insignificant. 

They are just a cost of doing business. They need to be, in our opinion, multiples of what the impact of that manipulation was, and 

that should be introduced. 

Third, lawmakers should have the right to reinforce Congressional intent that the end-users not be captured by regulations 

meant for financial institutions and systematically significant market participants. Our Coalition believes that the CFTC has the authority to address most of those concerns of the commercial endusers and they can do that within the agency. If not, the committee 

should address those issues in reauthorization. However, a great 

care should be taken not to inadvertently create new loopholes 

through additional legislation. Every definition seems to change 

once it gets into rulemaking. Large institutions and other large 

market participants are weakening exemptions meant only for 

bona fide hedgers, and allowing them to trade overseas without 

oversight is not in our interest. 

One final issue that is certain to come up today is the issue of 

position limits. Congress required the CFTC to impose speculative 

position limits on all markets in futures and swaps to help minimize swings in the price in commodities, and it is important to prevent manipulation. The CFTC is negotiating the final rule. This is 

now the fourth stab at it. While some bona fide hedgers have concerns about how to structure these exemptions, nearly all of them 

are supporters of meaningful limits in these markets. We hope that 

their ongoing concerns can be adequately addressed and the CFTC 

can move forward with that final rule. The conditional spot month 

31 

is a critical issue in pricing and that concern needs to be addressed 

in that process. 

Thank you again for the opportunity to present before this committee. 

[The prepared statement of Mr. Cota can be found on page 58 in 

the appendix.] 

Chairman ROBERTS. Well, thank you, Mr. Cota. 

Mr. Walker, elaborate on what you refer to in your written testimony as a, quote, ‘‘recordkeeping briar patch’’—I will add in the 

needles, if you wish—that a party may enter into by simply making 

one transaction. What are some of the costs and burdens associated 

with the new recordkeeping rules? Mr. Barber, please feel free to 

chime in here, as well, on this issue that you have highlighted in 

your testimony. Mr. Walker, Mr. Barber. 

Mr. WALKER. Yes. If I can go first, one of the issues we have is 

much longer retention periods for recordkeeping. The worst case 

prior to Dodd-Frank was for Federal Energy Regulatory Commission purposes we would keep records five years from record creation. Under Dodd-Frank, physical records would have to be kept 

for the life of the transaction plus five years. Our physical transactions with optionality that are swaps can be five, ten, 20 years 

long, so you are talking about life of that transaction plus five 

years can be ten, 25 years long, quite a long time. 

Also, both derivatives and physical transactions are subject to 

these retention periods. Pre-trade written communications must be 

kept not only on the derivative transactions, but also the physical 

transactions that are related to those. We, on behalf of our clients, 

are avoiding nodal exchange because of the impact of 1.35. That 

means that we are not hedging. We are more exposed. It also reduces market liquidity on nodal exchange because of that requirement. 

This rule was really intended for market fiduciaries, who have a 

fiduciary responsibility to customers and might be holding customer funds and prior to Dodd-Frank was never required of other 

commercial end-users. 

Mr. BARBER. Thank you for the question, Mr. Chairman. This is 

certainly a contentious issue for my company and for agricultural 

companies in general. The amount of material that appears to be 

required is well beyond anything that has ever been handled before. Capturing commercial conversations as a pre-trade communication, when you consider the number of merchandisers and 

farmers and elevators in just the State of Kansas, we do not always 

know what is a pre-trade communication or what is just a conversation between a broker and a farmer or a feedlot operator. To 

try and capture all that and think that that is germane to the oversight seems way beyond the pale of what is necessary. 

Chairman ROBERTS. What do you do with this? I mean, you are 

talking about keeping it for five years or whatever it was on top 

of whatever the transaction was. I mean, do you—I am wondering 

who inspects it. I mean, where is it? I mean, do you keep it on site 

or what? 

Mr. BARBER. I would have to say I am not sure. The IT group 

in all companies have a tremendous struggle with it, and I think 

that is an echo of one of our questions, what will they do with it? 

32 

Is there—more material there than anyone can possibly decipher or 

make sense of. What is its real purpose? It just feels like a burden 

with no real solution to anything that is a problem. 

Chairman ROBERTS. See if you can provide us with a real world, 

on-the-ground impacts that will come if the CFTC does not correctly define what it views to be a bona fide hedge to adequately 

provide the exemptions that hedgers, but not speculators, need, 

and any others on the panel are welcome to comment. 

Mr. BARBER. Thank you for that. Certainly, again, harvest is not 

that far away for wheat, and coming—— 

Chairman ROBERTS. Such as it is, yes. Go ahead. 

Mr. BARBER. —coming into a nice, beautiful harvest weekend 

and the local elevator knows that he is going to acquire probably 

a substantial amount of grain over that weekend and he is going 

to be exposed by putting out a bid to his local producers that, without clear direction that an anticipatory position is a hedge, he will 

probably be willing to pay much less to that producer because it 

increases his risk in the handling and the ownership of that grain 

than what he would if there was clarity that he would be within 

the appropriate regulation as a hedger, crystal clear, simple, that 

that is a direct impact. 

Chairman ROBERTS. I appreciate that. 

I am going to ask Senator Stabenow, but I just have a couple 

other questions, as well. Go ahead. 

Senator STABENOW. Well, thank you very much, and thank you 

to all of you for your input. 

Let me start with Mr. Cota. In your experience as president of 

your family’s energy company in Vermont, and as someone representing small end-users, I think it is really important that we 

hear your input as it relates to smaller user companies managing 

risk in the derivative markets, and I wonder if you might speak a 

little bit more from that perspective, and what changes, if any, do 

you believe the committee should focus on to ensure open, fair, and 

transparent markets for small participants. 

Mr. COTA. Thank you for the opportunity. As a small business, 

it is very difficult to do these hedges. The heating end of the industry that I represent requires a higher level of sophistication than 

most others because of its seasonality and how you have to blend 

contracts together in order to get it done. So, the changes that have 

been made have enabled people to actually be able to give consumers their energy costs fixed for the year or capped, which is 

even better, for a period of time, and blend those contracts together. A lot of that has been done with the changes from futures 

markets into option contracts and some derivative programs along 

with that. It is much easier to do that now in smaller units where 

they would not be able to do it. So, the consumer benefits through 

that reduced cost and the companies’ costs have gone down. So, 

that has been a positive benefit. 

Stability in these markets are critical. The option prices are a 

measurement of, really, what the volatility is, and the consumer is 

the one that ends up paying that. It does not matter what the market is. So, that has been a positive thing. 

For changes that need to be done, one is that of the customer 

monies that are set aside is a critical issue. In most of our indusVerDate Nov 24 2008 16:08 May 03, 2016 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 C:\USERS\MW42035\DESKTOP\DOCS\96178.TXT MICAH
33 

tries, the commodity costs are such a significant portion of the total 

business that if in a derivative that is not cleared and you do not 

have access to those funds, then that company is out of business. 

You may be held financially whole later, but it does not matter. 

You are out of business. So, that is an important element to the 

rule. 

Penalties are really critical. Having somebody monitor the activities. You know, the CFTC needs funding. People miss the scope of 

things. The derivative markets is $700 trillion worldwide. The total 

world stock market is, like, what, $60 trillion. The SEC is in charge 

of the stock markets. The U.S. portion of these is, like, half, high 

leverage, still 35 times leverage. Energy, it is much higher. Some, 

for example, it is even greater still. So, these markets are so huge, 

and, so, having the CFTC have the funding just to get things done 

is critical. You need to know what the new rules are. 

Senator STABENOW. Following up on that, you talked about the 

fact that, from a stability standpoint, small end-users, in particular, are counting on the CFTC to do their end of it, right, and 

clear, consistent rules that are fair and not overly burdensome, or 

hopefully not burdensome at all, but certainly not overly burdensome. 

But, then, you also talked about the fact that there are large 

CFTC enforcement actions going on much, much larger, that, in 

fact, their enforcement budget, and you are recommending that we 

should increase the penalty authority as we look at reauthorization. I wonder if you might talk more about that, because there 

really is a concern that I have that if these penalties are too low, 

you just make it a cost of business and keep on going and it is not 

really protecting you or other end-users, people that are counting 

on this system to have integrity and accountability in it. 

Mr. COTA. If it is not—if it is just a part of the cost of doing business, it has no prophylactic effect. There are lots of Ponzi schemes. 

If you take a look at the CFTC violations, there are tons and tons 

of violations. Many of them are very small Ponzi schemes relative 

to, say, the LIBOR scandal or something like that. But, they need 

to be proportional to what that profit was made in that transaction. 

Otherwise, it is not going to have any prophylactic effect. 

If it is capped at a certain amount and the benefit turns out to 

be billions of dollars to that entity, then they are going to do that 

all day long. There is no reason for them not to. If it means that 

they have to hire more attorneys, well, guess what. More attorneys 

make more money. But, they are going to keep doing that transaction. 

So, I think it needs to be some multiple of what the benefit was 

or what the damage was in order for it to have any impact. If it 

does not have an impact, the federal government has more money 

to spend. 

Senator STABENOW. Thank you, and Mr. Chairman, I have more 

questions, but I know my time is up, so thank you. 

Chairman ROBERTS. Senator Hoeven. 

Senator HOEVEN. Thank you, Mr. Chairman. 

We have to reauthorize the Commodity Exchange Act, and so I 

guess what I would like to hear from each of you are what are the 

most important issues we need to deal with in reauthorization and 

34 

the solutions. What is the top one or several issues you think we 

have to deal with in reauthorization and what you think we should 

do, starting with Mr. Duffy. 

Mr. DUFFY. I am a big believer that the reauthorization process 

could probably be somewhere in the one-liner, with the exceptions 

that we have been discussing today, which is the end-user exemptions that need to be clarified. We have to take out the people that 

were not the causation of the 2008, 2009 crisis and let them go 

ahead and continue to do their business. So, I think that is critically important to do. 

Also, which has been raised earlier, is the concern of the concentration of some of the smaller FCMs. You have to realize that 

the people that put food on the table in the United States of America, the producers of our country, from food to other products, they 

need a place to participate to do their trades, and more and more 

of these firms are getting—the smaller firms are getting onerous 

costs to do business today, so we are getting a concentration—we 

talked about it earlier—losing more firms. 

Senator HOEVEN. Yes. 

Mr. DUFFY. That is a big issue that we need to figure out with 

the firms and how we are going to expand this so the participants 

or the end-users can continue to do their business to benefit the 

rest of us in this country. 

Senator HOEVEN. Mr. Barber. 

Mr. BARBER. Thank you, Senator. I would certainly concur with 

Mr. Duffy’s assessment. As an end-user, as a significant user and 

trader of these products, we would hope the committee would, as 

I said, look at what the intent of Dodd-Frank was and look at the 

gap that was created in how it has actually been implemented. 

What we have experienced is a serious overrun of regulatory reach 

way beyond what was intended. So, a return to that—and, certainly, if that requires more legislative action, we would commend 

you for doing that, to put the parameters back around that effort 

such that it regulates the swap market and the OTC markets that 

were the genesis of the problem that we had and not affect the 

market structures that, by and large, worked effectively for ag and 

energy producers and consumers prior to Dodd-Frank. 

Senator HOEVEN. Mr. Walker. 

Mr. WALKER. Thank you, Senator. The statute provides broad exemptive relief in the area of position limits for classes of market 

participants or classes of transactions today, and the CFTC should 

use that exemptive authority to more fully exempt commercial endusers from position limits. We believe that physical transactions 

should not be swaps, regardless of the fact of whether they have 

optionality in them or not, and we believe it is important not to 

treat commercial end-users as though they are a customer fiduciary 

or somebody that caused the financial crisis of 2008 by subjecting 

them to Regulation 1.35. 

Senator HOEVEN. Mr. Bopp. 

Mr. BOPP. Thank you, Senator. Number one, adopt the Chairman’s legislation, S. 876, which would prevent non-financial endusers from being denied the very clearing exemption that is embedded in Dodd-Frank simply because they use a best practice, they 

35 

use these centralized treasury units. This is a bill, by the way, that 

passed the House last Congress by voice vote. 

Number two, provide additional guidance. I think that our regulators are doing what they can to try to harmonize rules across borders. What we would appreciate as end-users is additional guidance to our regulators that they should take into account the views 

of end-users and the interests of end-users in trying to harmonize 

rules across borders. 

Senator HOEVEN. Mr. Cota. 

Mr. COTA. I would agree with Terry Duffy, and in addition increase penalties, as I said before, and full funding. Whenever you 

are having new rules, you need to get it done quickly. If there is 

not enough money to get the process done, then everyone is waiting 

for what the new game is. So, they need full funding for that. 

Senator HOEVEN. Do you all agree that the Roberts legislation 

would address the end-user issue, starting with Mr. Duffy. 

Mr. DUFFY. I do. 

Mr. BARBER. Certainly, it is a significant improvement. 

Senator HOEVEN. Mr. Walker, I guess you have already said. 

Mr. Bopp. 

Mr. BOPP. I do. 

Senator HOEVEN. Mr. Cota. 

Mr. COTA. We do not have a position on this legislation. 

Senator HOEVEN. Last question. I do not know if it was Mr. 

Duffy or Mr. Barber, but one of you—so, we have talked about enduser. With the exception of Mr. Cota, you all feel that that would 

address the end-user issue, and I am disappointed I did not get to 

talk to the Chairman on that issue in terms of their flexibility. 

But, the other question I have is for small companies, small providers. I do not know if it was Mr. Duffy or Mr. Barber who said 

that the regulatory burden is hurting the ability of the smaller 

companies to stay in the business. Of course, that means less competition, less service, not as good pricing for the customer. It also 

means concentration of risk. That is an important point. How do 

we address that? Is there legislation out there to do that? Does 

CFTC have the flexibility to do it without legislation? Two questions. 

Mr. DUFFY. Real quick—— 

Senator HOEVEN. I would ask for some indulgence from the 

Chair, or I can come back if you would like me to do this in the 

second round, but can they answer that? 

Chairman ROBERTS. Certainly, they can. We have a vote. It is ongoing. 

Senator HOEVEN. I will be particularly tough on Mr. Cota for 

you, if you want—— 

[Laughter.] 

Chairman ROBERTS. Well, he is really talking about the Klobuchar initiative as of last year. I wondered if that would help you 

change your mind, instead of me. 

Chairman ROBERTS. I do not mean to put you on the spot. Why 

do we not just forget that. But—— 

Senator HOEVEN. I will wrap up, Mr. Chairman. The—— 

Chairman ROBERTS. Go ahead. 

36 

Senator HOEVEN. Does the CFTC have the flexibility to provide 

that regulatory relief now? If not, is there legislation out there that 

would accomplish that we could maybe incorporate in reauthorization? 

Mr. DUFFY. I will try to answer very quickly, sir. Real quick, 

there is a business model problem embedded in the FCMs today. 

We talked about interest rates being where they are at today. A 

lot of the firms in the FCM world made money off of other people’s 

money. Interest rates went to zero. In the meantime, trading exploded, but the cost of doing business went way down. Everybody 

benefited, except for one thing happened. Interest rates went down, 

so the business model for the FCMs went away. The big participants could always survive that. The smaller participants cannot. 

What is critically important is we cannot have burdensome rules 

that apply to the banks that apply to small FCMs in the same way, 

because these small FCMs do not have the deep pockets that the 

banks have today and over 50 percent of the activity being done 

today in regulated futures market is done by smaller participants. 

Senator HOEVEN. Is the flexibility there for the regulators to give 

them the relief? Is legislation needed? Which? 

Mr. DUFFY. I do not believe—I do not know if they can create legislation on how to run a business. I do not know if that is appropriate or not—— 

Senator HOEVEN. Regulatory relief. 

Mr. DUFFY. Regulatory relief is a different issue and I think we 

have to look at all the different rules that apply to banks and 

smaller FCMs, and I think that is, again, what this hearing is 

about, is to exempt some of the end-users who participate in these 

smaller firms, not in the bank firms. 

Senator HOEVEN. Mr. Barber. 

Mr. BARBER. Yes. I mean, I think that was covered well by Mr. 

Duffy and in his comments. Certainly, the CFTC has a lot of places 

that they could relieve some regulatory pressure on smaller entities. 

Senator HOEVEN. Does anyone else have something they want to 

add on that issue? 

[No response.] 

Senator HOEVEN. Okay. Thank you. 

Chairman ROBERTS. This will conclude our hearing. I want to 

thank all witnesses. 

I ask unanimous consent that the report by former CBO Director 

Douglas Holtz-Eakin be entered in the record at this point. So ordered. 

[The following information can be found on page 106 in the appendix.] 

Chairman ROBERTS. Mr. Barber, as a conclusion, that report said 

that the cost of Dodd-Frank compliance could reduce GDP by $895 

billion from 2016 to 2025, and you mentioned in your testimony 

that the compliance cost for ADM’s FCMs have doubled in the past 

five years. Simple question: Do you find you are now spending 

more and more time and money complying with rules and regulations which create distractions from the crucial risk mitigation 

services that you provide our farmers and ranchers? 

37 

Mr. BARBER. Thank you for the question, Chairman, and the 

ability to conclude. Absolutely. In a market that essentially functioned well for us previously, we are spending substantial amounts 

of resources dealing with a regulatory scheme that was not in place 

prior to Dodd-Frank and that has not helped our markets function 

any better or created a safer marketplace. 

Chairman ROBERTS. I appreciate that. I appreciate the panel. 

This concludes the hearing. 

[Whereupon, at 12:08 p.m., the committee was adjourned.] 

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