WASHINGTON -- House Agriculture Committee Chairman Collin Peterson, D-Minn., has scheduled a committee markup session Oct. 21 to add provisions to reduce oil and agriculture commodity speculation to the over-the-counter derivatives regulation bill that the House Finance Services Committee passed Oct. 15.
The bill is part of the effort by the Congress and the Obama administration to increase regulation to avoid the missteps by financial institutions that led to the financial crisis last year that required a government bailout. The financial derivatives issued with no financial backing by the American International Group were one of the biggest factors in the financial crisis. Under a law passed in 2000, those derivatives were exempt from regulation but the new bill would change that.
Effects on end users
The bill applies mostly to financial derivatives that companies use like insurance to reduce the risks of price changes. Most of the users of financial derivatives are nonagricultural, but some companies such as Cargill do use financial derivatives. Cargill, rural electric cooperatives and other "end users" of derivatives had expressed concern about proposals that would have required them to put up cash to back the derivatives, but the bill allows end users to continue using the same noncash collateral they've been using, but would require the major banks that deal in derivatives to put cash behind them. Peterson said in an interview Oct. 14 he agrees with the provision that does not make the end users subject to the same requirements as the banks that sell the derivatives.
"The end users were not causing any problems," Peterson noted.
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The complex over-the-counter bill must go through both committees because it covers derivatives related to the securities industry over which Financial Services has jurisdiction and other derivatives and futures industry that the agriculture committee oversees.
The bill passed the House Financial Services Committee on a vote of 43 to 26, with only one Republican, Rep. Walter Jones of North Carolina, voting for it.
Peterson said he had planned the markup for Oct. 16, but is planning to delay it until Oct. 21 at the request of Republicans on his committee. Peterson said it "looks like" there will be a bipartisan vote on the agriculture committee in favor of the bill.
Bill versions
House Agriculture ranking member Frank Lucas, R-Okla., who also sits on Financial Services, said in an e-mail late Oct. 14, "It is fortunate that agriculture committee members will have a few days to evaluate the outcome of this markup before taking up the issue next week. There are still concerns from the end user community and others with both the (Rep. Barney) Frank and Peterson bills."
The final version of the House Financial Services bill was a big victory for Peterson because he had written a much tougher bill than Financial Services Chairman Frank, D-Mass., had written and Frank, after consultation with Commodity Futures Trading Commission Chairman Gary Gensler, decided to toughen his legislation.
The Frank bill, for example, mandates that trades between major financial players -- such as banks and hedge funds -- be placed on exchanges, said in an interview that he is pleased with Frank's bill because "he keeps picking up our provisions and putting them in his bill." Peterson said he thinks that Frank's bill and his proposals "will be identical" when the House Financial Services markup is finished.
Peterson plans to add provisions to address concerns expressed by airlines, public utilities and farm groups that institutional investors' decisions to invest in commodities last year caused futures prices to skyrocket and made the futures markets unworkable for long-term market participants who depend on them for risk management and price discovery.
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Peterson said he expects the provisions to be the same as in the bill his committee passed but that he will add position limits. The bill would give the CFTC authority to establish the limits.
Treasury Assistant Secretary for Financial Institutions Michael Barr said Oct. 14 that the Obama administration financial services regulation proposal did not address the speculation issue, but said administration officials are working with Peterson on those issues.
