Date: 1987-10-29
Speaker: DE LA GARZA (democrat)
Chamber: H

Mr. Chairman. I rise in support of the bill. Like all Members of the House. I am deeply concerned about the current disarray in the worlds financial marr kets. The Wall Street debacle of the past few days has made clear the need -19180 for Congress. in concert with.the exec- duction and cause decreased commodi- reco utive branch. to: act decisively in a- ty loan outlays. tive Federal deficit reduction initiative. Title I. in subtitle C. will reform the B H.R. 3545 is a first step to getting definition of "person" for the purpose spe the Federal budget deficit under con- of determining the application of the on trol. Quick action by Congress on this monetary limitations on direct produc- grar billwhich proposes to cut the deficit er payments under the farm Commodi- task by $23 billion this fiscal yearcould do ty programs. These reforms are .ex- yea: much to calm our troubled markets. pected to reduce projected reconstitu- harn Title I of H.R. 3545. under the rule. tion and splitting of farms. and limit plac consists of budget reconciliation pro- future payments to individuals in cur- less. posals developed by the Committee on rent farm organizations who now re- leng Agriculture. Our proposals will con- ceive amounts several times greater grar tribute a budget reduction of over $1.3 than authorized under the existing cha billion this fiscal year. as estimated by limitations. G the Congressional Budget Office. In Subtitle D of title I will permit the ricu addition. title I will provide for a one prepayment of rural electrification farr time revenue boost of an estimated loans made by the Federal Financing of t $7.2 billion in fiscal year 1988 through Bank without penalty. as provided for less prepayment to the Federal Financing under the concurrent resolution on Bank of certain rural. electric- loans the budget for fiscal year 1988. It also farr guaranteed by the Rural Electrifica- will require that a processing fee be sult tion Administration. collected from borrowers that prepay Title 1. in subtitle A. will require ad- to provide for contingent costs to the e. vancing deficiency payments to pro- Federal Financing Bank associated es. ducers at a 30percent payment rate with the prepaid loans. mec cost for wheat and feed grain crops and a . The.Subtitle D will direct the REA st 20percent payment. rate. for cotton Administrator to disapprove. condem- sub and rice crops. Current law provides nation and acquisition ofthe property are the Secretary of Agriculture authority of electric utility cooperatives. in cer- ily to advance up to 50 percent of these tain cases. adjust the Rural Electrifi- out payments. and this authority hasbeen cation Administrations administra- stru used to make 40 percent of wheat and tively imposed limit on the amount of M feed grain payments and 30 percent of utility cooperative funds that may be to J cotton and rice payments in advance invested in nonact purposes from 3 to pro for the 1987.crop year. This policy is 15 percent. direct the Rural Electrifi- voti projected to continue through the ex- cation. Administration to refinance and vita piration of the Food Security Act of reamortize all its outstanding certifi- A 1985. Savings result from limiting the cates of beneficial ownership issued to sup advances below this projection. . the Treasury. and direct the Rural spe Subtitle A will require that 1 billion Electrification Administration to con- tha bushels of Commodity Credit Corpora- ducta study regarding the feasibility wh tionowned surplus stocks be sold on a of creating a utilityowned national M bid basis for nontraditional uses by power transmission grid. Hou the end of fiscal year 1990. Spending is It will provide reforms in the deter- cone projected to decline from sales receipts mination of interest rates charged by in th and the reduction of storage costs. the Rural Electrification Bank. effec- York Subtitle A will restrict the maximum tive beginning in fiscal year 1989. As trum allowable acreage limitation for oats part of these reforms. it will permit theto 5 percent of base acreage. Reduc- prepayment of loanswithout penal- have tions in barley price support program tystemming from the excessive inter- stoc costs are projected to more than offset est rates charged by the Rural Tele- tradi the increase in oats program spending phone Bank. The REA and RTB loan stoc because acreage formerly planted to prepayments. as well as the processing S barley is expected to be planted to fees. will result in increased receipts to in g oats instead. the Federal Government. in p Subtitle A also will require the early Subtitle E of title I will modify cur- and disbursement of 75 percent of certain rent law on the penalties for violation chai producer payments that are based on of agricultural marketing orders to in- whic season average prices. About $1.76 bil- clude civil penalties in addition to stoc lion of payments to producers would criminal penalties. The Federal Gov- ture. be made in fiscal year 1989. rather ernment is expected to collect receipts ager than fiscal - year 1990. This would from fines under these civil penalty shar result in increased 1989 outlays but re- provisions. findii duced 1990 outlays such that the net Subtitle E will impose new labeling ing 2year budget effect would be zero. requirements regarding cheese and have Subtitle B of title I will permit pro- cheese alternates in frozen foods. Hi ducers that participate in acreage re- These labeling requirements are ex- to a duction to not plant any of their per- pected to result in increased use of men mitted acreage and receive 92 percent real cheese by frozen food manufac- ing of the deficiency payments on their. turers. thus reducing Government pur- side permitted plantings. Current law pro- chases of cheese under the Dairy Price tee vides that producers must plant at Support Program. the least 50 percent of their permitted Title I also includes the provisions of and planting acreage to receive 92 percent H.R. 3337. a bill to make improve- rece of their deficiency payments. Elimina- ments in the Food Stamp Program. A ture. tion of the 50percent planting re- key element of the committees title I Si - quirement is projected to lower pro- provisions is that. we achieve .needed drop nciliation targets. without substanly ievislng the 1985 farm bill. ecause much of the direct Federal nding controlled by the Committee Agriculture is in the farm prons. the committee had a difficult In achieving its assigned fiscal r 1988 budget target without doing m to the farm programs put into :e by the 1985 farm*bill. Nonethethe committee met that chale. and under title I. the farm prons will continue essentially .unnged. iven the precarious state of the agltural economy. the last thing our ners need is a change in the course he farm programs put into place than 2 years ago. urther. for the most part. the 1985 nrbill is beginning to show good res in stabilizing agricultural marand reducing commodity surplusIn fact. as the programs begin to t -their goals. we see the Federal of the programs being reduced stantially as well. Projections now that farm program costs will steaddecline over the next 3 years. withany substantive changes in the icture of the programs. :r. Chairman. I urge my colleagues oin me in strongly supporting the visions of title I of the bill. and in .ng favorably on passage of this I legislation. d. Mr. Chairman. as part of my port for this measure. I would rectfully address a collateral issue t is impacted by the deficit and it we do here today. r. Chairman. many of the Members of the se have approached me to express their cern regarding the recent precipitous d rop e prices for equity securities on the New Stock Exchange and across the specof other stock exchanges and the overcounter markets. Some of my colleagues questioned whether or not the trading of k index futures and socalled program ng may have played a role in the fall of k prices over the past 2 weeks. )me have suggested that program trading eneral. and the use of stock index futures articular. are contributors to the volatility. overall decline in stock prices. As the rman of the Committee on Agriculture. h has jurisdiction over commodity futures. k index futures. and the Commodity Fun Trading Commissionthe Federal ncy which regulates these activitiesI e responsible commentators interest in ng out what effects. if any. program tradand the use of stock index futures may on the stock market. owever. we should be careful not to jump ny conclusions about the benefits or detrits of stock index futures or program tradwithout first collecting and carefully conring all of the available data. The Commiton Agriculture is taking a close look into effects that the use of stock index futures program trading may have had during nt fluctuations in both the cash and fun markets for equity securities. rice the. Dow Jones Industrial Average ped more than 500 points on Monday. October 19. I have been in frequent contact with regulators at the Commodity Futures Trading Commission and officials at futures exchanges that trade stock index futures. I have also met with Hon. ED JONES. the chairman of the Agriculture Subcommittee on Conservation. Credit. and Rural Development. Hon. EDWARD R. MADIGAN. the ranking Republican on the Committee on Agriculture. and Hon. E. THOMAS COLEMAN. the ranking Republican on the Subcommittee on Conservation. Credit. and Rural Development. to discuss these important issues. We believe it is the committees responsibility to take a serious look at whether or not the use of stock index futures and program trading serve the public good and if consumers. farmers. exporters. -investors. and others affected by the commodity futures markets may be negatively affected by these developments. We make no assumptions at this point. but it is clear to me that recent events require us to thoroughly investigate this new phenomenon. For those Members not familiar with trading in stock index futures. a brief review of the regulatory history is in order. The Commodity Futures Trading Act of 1974 (Public Law 93463) marked a new era of futures trading regulation. Prior to enactment of that legislation. the regulatory statute enacted in 1936the Commodity Exchange Acthad been substantially revised only oncein 1968and regulated futures trading was limited to certain enumerated agricultural commodities. The 1974 act greatly expanded permissable trading to include contracts in any goods. service. right. or interest traded for future delivery. Also. the Act created the Commodity Futures Trading Commission [CFTC]. an independent agency. to take over regulation of the futures industry. The expansion in futures trading was needed to respond to the demands and potentials being brought about by the revolutionary advances being made in business communications and computers. and other changes in international finance. With the advent of floating exchange rates and global markets in currencies. for example. the need arose for ways to hedge the risk of holding or trading foreign currencies. Likewise. the onset of volatile interest rates coupled with sophisiticated new computer techniques of finanical management led people to think of financial instruments as tradable commodities and created the need and opportunity for the development of instruments to protect against interest rate fluctuations. In short. the 1974 act allowed the use of futures for riskhedgrg in new areas and for new commodities. The .1974 legislation also imposed new oversight responsibilities for the Committee on Agriculture. We had to develop expertise in such exotic new futures instruments as Tbill and yen futures. I am proud to report that our committee. and especially the Subcommittee on Conservation Credit. and Rural Developmentwhich handles futures oversight responsibility for the committeehave acquitted themselves well in meeting these added responsibilities. Since 1974. we have successfully handled three multiyear CFrC authorization billsin 1978. 1982. and 1986. The current authorization expires September 30. 1989. Members of our committee have developed welldeserved reputations for their expartise in this relatively arcane area of finance. Likewise. the Commodity Futures Trading Commission has gained much respect for its responsible regulation of a rapidly expanding futures industry. The industry has mushroomed over the past 10 years both in volume of trading and instruments traded. but its growth has for the most part been smooth. The Commission has been vigilent in the protection of the public and the industry has respondcd quickly to problems as they have arisen. Pursuant to the 1982reauthorization. the industry has put in place a strong. selfregulatory armthe National Futures Associationin addition to the frontline. selfregulatory functions of the exchanges themselves. A relatively recent development in the futures industry is trading in stock index futures. These cashsettlement commodity contracts were developed to allow hedging the risks involved in holding and trading stocks. While a logical part of the development of futures following the 1974 act. stock index futures brought the futures industryin direct contact with the securities markets. and necessitated the Commodity Futures Trading Commission to coordinate its regulatory program with that of the Securities and Exchange Commission. The Futures Trading Act of 1982 implemented a jurisdictional accord between the Commodity Futures Trading Commission [CFTC] and the Securities and Exchange Commission [SEC] that clarified the division of regulatory responsibility between the two agencies with respect to stock index futures and options. In that legislation. the CFTCs jurisdiction over all futures contracts and options on futures contracts was retained. as was the SECs jurisdiction over stock options. Thus. it is the case today that the CFTC regulates futures on stock indexes and options and the SEC regulates options on stock indexes. I am pleased that these two regulatory agencies have in the past and continue today to work closely together in the regulation of these markets. For example. in the Futures Trading Act of 1982. Congress mandated a study to determine whether or not futures and options markets would detract from liquidity in the underlying markets or otherwise adversely affect cash markets and capital formation. The Federal Reserve Board. the SEC. and the CFTC conducted the study jointly and concluded that rather than chasing investment away from the equity markets. these instruments actually may assist capital formation. The CFTC has exhibited its effective oversight and regulation of the markets. and the futuies exchanges have not been reluctant to implement emergency procedures in coordination with the CFTC in times of market difficulties. The futures exchanges themselves have also worked closely with their counterpart exchanges in the equity markets. The futures and cash exchanges have agreed to close early through this week in an effort to allow the cash exchanges the opportunity to settle the transactions from the record trading they have experienced over the past week. Also. last Thursday. the futures exchanges. working with the CFTC. implemented daily price limits and increased margin requirements on stock index futures. These actions exemplify the close working relationship that exists between all of these exchanges and their respective Federal regulators. . I would like to commend the CFTC for their diligence and positive action during thisdifficult time. I would also like to express my appreciation for the manner in which the CFTC has coordinated their regulation of trading in stock index futures with the SECs regulation of the stock exchanges themselves. The working relationship between these two agencies has been very good in past years. and they have continued to work successfully together over the past few weeks. I was also pleased at reports from the CFTC of the timely implementation of the CFTCs audit trail regulations and its large trader "reporting system. both of which assisted not only the CFTC. but other regulators as well. in keeping abreast of market developments over the past few weeks. I wish to take this opportunity to inform my colleagues in the House that Chairman Eo JONES has announced that the Subcommittee on Conservation. Credit. and Rural Development will begin hearings on this matter next Wednesday. November 4. at 10 am. Mr. Chairman. as the chairman of the committee with jurisdiction over the issues involved with the trading of stock index futures. I would pledge to my colleagues in the House that we plan to thoroughly review these issues before taking any action. We will be working closely wiht the Federal regulators of these financial markets. the directors of the futures *exchanges. and the participants in these markets. We Will also welcome the input of our fellow Members in the House at every step of this process. With this in mind. I would also inform my colleagues on other committees in the House with an interest in these important issues that we on the Committee on Agriculture will be pleased to share with you our findings from this review. It is critical that we not take action just for actions sake on this very important and sensitive matter. The Committee on Agriculture is committed to discharging its responsibilities in this matter both thoughtfully and efficiently. We will welcome the input of all interested parties as we begin the process of investigating these issues of importance to consumers. farmers. exporters. and investors. However. it will not serve anyones best interest to charge ahead without first carefully studying the complex issues at hand.