Date: 1986-07-16
Speaker: DE LA GARZA (democrat)
Chamber: H

Mr. Chairman. I yield myself such time as I may consume. Mr. Chairman. H.R. 4613. the Futures Act of 1986. provides a 3year reauthorization. through fiscal 1989. for financing the regulatory programs that are carried out under the Commodity Exchange Act by the Commodity Futures Trading Commission. In addition to the extension. the bill makes several changes in the law that are mostly in the nature of finetuning a regulatory system that generally is working effectively. The regulatory system that this legislation would continue oversees one of the most dynamic and complex areas of our national economy. Futures trading began in agricultural commodities. but today it is a multibilliondollar financial system that is used to share and reduce risks and reduce costs for commodities of many kinds. The futures markets perform two vital functions for our economy. First. they provide machinery for hedging the system in which farmers. businessmen. and others can reduce costs by shifting risks to other investors. Second. the markets perform the function that economists call "price discovery." That means that buyers and sellers are brought together in a central market where their bids and offers can allow supply and demand forces to determine future prices and price trends. In 1974. after it became apparent that earlier regulatory systems were not good enough to provide the effective safeguards needed in a rapidly changing industry. the Agriculture Committee was instrumental in creating the Commodity Futures Trading Commission. Also. we took another step forward by encouraging the futures industry to create an industry selfregulatory organization. the National Futures Association. In reviewing the situation this year. our committee has been pleased to see that the CFTC has continued to improve its operations and has met the challenge of providing effective protection for the public. We have been pleased to see. also. that the National Futures Association is making strides toward the selfregulatory goals Congress set for It. Because the regulatory system is generally working well. the changes we are proposing In the law at this time are basically In the nature of improvements rather than drastic changes in philosophy or direction. The major provisions of the bill include the following: A 3year reauthorization of appropriations for the CFTC. This period was chosen so that the next reauthorizatin will not coincide with the next review of the omnibus farm bill. Technical amendments to clarify the fact that the Commodity Exchange Act prohibits fraud in connection with any futures contract. whether or not the contract Is executed on a futures market. A requirement that the CFTC rescind its options pilot program within 90 days of enactment. and that it establish a permanent program for commodity options trading on futures markets. The CFTC itself has already gone part way to this objective by its decision to grant permanent nonpilot status to options trading in nonagricultural commodities. A provision authorizing the CFTC to serve investigatory subpoenas on persons outside the United States. a power that would be similar to the existing authority of the Federal Trade Commission. I should point out that the committee report notes that we expect the CFTC to use its new authority appropriately. only in the precomplaint investigatory stage of enforcement proceedings. and with sensitivity to the concerns of foreign governments and exchanges. A provision authorizing the CFTC to ask for temporary appointment of an ex parte receiver when it is seeking to prevent the dissipation of assets or destruction of records in actions to enforce compliance with the act. A provision allowing CFTC employees and Commissioners to invest in actual commodities as long as no nonpublic information is used and the transactions do not involve futures. options. or leverage. A section that simplifies procedures for CFTC review of disciplinary actions and membership restrictions imposed by registered futures associations. such as the National Futures Association. In particular. this section removes a requirement that grants an automatic stay of a disciplinary action whenever a party files an appeal to the CFTC or the CFTC starts its own review. Under the pending bill. there would be no stay unless the CFTC affirmatively decided to grant one. A technical provision repealing a section of existing law under Which the CFTC must complete initial action on registered futures association rules within 30 days. And. finally. a provision making changes in the law as it applies to leverage transactions. The leverage issue is one on which there has been much discussion and debate. Congress gave the CFTC exclusive jurisdiction to regulate gold and silver leverage transactions in 1974. Later. we banned leverage in agricultural commodities. authorized CFTC to ban such transactions in some cases and pressed hard for effective regulation. In 1982. Congress specifically directed the CFTC to provide effective regulation for leverage transactions in commodities except for those subject to a legal ban on agricultural commodity leverage. Under the leadership of Chairman Susan Phillips. the CFTC did provide regulation which is now In place. This year. the Agriculture Committee was faced with proposals that would have. in effect. outlawed leverage. and some members of the committee favored these proposals. But a strong and bipartisan majority of the committee opposed any change that would have had the unfair effect of putting two CFTC registered and regulated firms out of business. Equally. the committee did not favor granting a permanent monopoly on leverage to those two firms. Instead of these courses. the committee has adopted what we believe to be a fair compromise that provides continued freedom to compete coupled with effective regulation to protect the public. Under this compromise: Leverage trading in the future would be limited to gold. silver. and platinum. although existing contracts in other commodities would be allowed to run their course. Acting with the assistance of a futures industry association. the CFTC would be required to conduct within 2 years a survey of persons interested in entering the leverage business. Following the survey. the Commission would make a report on whether leverage transactions serve an economic purpose. on the most efficient manner to admit new entrants to the industry. and on appropriate additional regulations for the industry. Following this report. new firms would be admitted to the leverage business on a gradual basis. This completes a brief description of H.R. 4613. I urge the Members of the House of Representatives to support the bill as reported by the Committee on Agriculture.