Date: 1982-09-23
Speaker: DE LA GARZA (democrat)
Chamber: H

Mr. Chairman. I yield myself such time as I may consume. I rise in support of H.R. 5447. the Futures Trading Act of 1982. Mr. Chairman. let me remind the Members that what we do now is in sequence with the legislation that was just adopted by the House relating to the Securities and Exchange Commission. H.R. 5447. the Futures Trading Act of 1982. extends the funding authorization for the Commcdity Futures Trading Commission through September 30. 1986. It resolves jurisdictional disputes that have arisen since Congress made the last major amendments to the act in 1978 and updates the Commodity Exchange Act. Just a brief history. The Commodity Futures Trading Commission was established in 1974 as an independent regulatory agency to oversee the trading of commodity futures contracts. At that time the trading of futures contracts on agricultural commodities was regulated by the Department of Agricultures commodity exchange authority. Several nonagricultural commodity futures contracts were being traded but not regulated. Congress then realized a need for uniform regulation of all futures trading and that futures trading was a distinct and separate economic function. It acted to establish an independent agency with the resources and regulatory tools required to protect the public interest in view of the uniaue and the expanding role of futures trading in the national and international economy. Futures trading has two primary economic functions: Price discovery and risk shifting. I know that this is sometimes complicated to the Members. Let me just say briefly that price discovery is the process through which traders buying and selling futures contracts on the exchanges discover the competitive prices that best represent the consensus of what traders think commodity prices ought to be in the future based on information available today. Exchange generated prices assist in establishing cash prices for commodities in localized markets as well as in related services such as storage. transportation. and processing. Let me interject that that is one of the reasons why this legislation is so vital and so important to American agriculture. Risk shifting provides an opportunity for shifting the risks associated with commodity ownership from individuals and entities who are unwilling to bear such risks to those who are willing to carry these risks in return for a possible profit. This riskshifting process is known as hedging. You probably have heard about hedging. So all that it does is that the holders of ownership. either individuals or entities. will hedge their investment by buying into the futures contracts and therefore shifting the responsibility or shifting the risks on that commodity. The correctness of this 1974 congressional initiative has been borne out in phenomenol rate of growth in futures trading. coupled with the growth of public and commercial confidence in the integrity of the industry and the regulatory framework. In the past 5 years. futures trading volume has nearly tripled. from 37 million contracts to more than 100 million contracts annually. The term "commodity" has come to embrace a variety of financial instruments. precious metals and natural resource items. such as petroleuin. as well as domestic and International agricultural products. And here let me state that we in the Congress. as well as the Commission. have tried to stay abreast. if I might state it in modem technology. in the modern art of financial investment in the United States. We have not stayed with the status quo but. rather. working through and with the industry. have tried to provide contracts and possibilities of investment commensurate with the modern world of 1982. While many new commodity futures contracts are now actively traded. agricultural commodity futures still accounted for over half the total number of contracts in 1981. According to the GAO in a recent report. several factors underlie the increased volume and importance of futures trading. A prominent factor has been the economic uncertainty of recent years coupled with high inflation and high risk rates.. During several days of public hearings in February of this year. the consensus of the public testimony was that the Commission should be reauthorized and that the Commissions authority and structure should not be substantially altered. There are other provisos of the bill that will be discussed by the chairman of the subcommittee. the gentleman from Tennessee . who I might state has done a wonderful job. not only the gentleman and the ranking minority member. the gentleman from Vermont