CMC Members Discuss LSOC and MF Global

On CMC’s policy call this week, members gave special presentations on the CFTC’s Legally Separate Operationally Commingled (LSOC) final rule that was released in January. Its pros and cons were analyzed. Following that, members and staff discussed the CIEBA proposal regarding segregated funds, with a view to try and understand it better from a cost-benefit perspective. The CFTC’s upcoming public roundtables on clearing arrangements and customer protection were also discussed.


CFTC to Hold Open Meeting to Consider One Final Rule and One Proposed Rule

The final rule on entity definitions has been retracted from the Feb 23 agenda of the CFTC meeting.  See the updated agenda here.

CMC Meets with CFTC Commissioner Wetjen

CMC, jointly with the Energy Working Group, took the opportunity to sit down with CFTC Commissioner Mark Wetjen earlier this week. We discussed the upcoming Swap Dealer definition. All meeting participants were encouraged by what they heard from the Commissioner and his senior staff. A couple of highlights: The de minimis level is going to be raised to $3 billion of gross notional swaps value at the upcoming public meeting on February 23, Thursday. Footnote # 18 in the proposed swap dealer definition will be removed – in other words, it will not be mandatory for every swaps transaction to necessarily involve at least one swap dealer counterparty.

CMC Meets with Rep. Bachus

CMC recently sat down with House Financial Services Committee Chairman, Rep. Spencer Bachus (R – Alabama). He opined that the CFTC has gone too far in over-regulating the derivatives and commodities markets. Several industry lobbyists, including those from commercial firms, spoke up about how the CFTC’s rulemakings (such as the Swap Dealer definition) had the potential to adversely impact them.

CMC Meets with Sen. Roberts’ Staff

Earlier this week, CMC met with Sen. Pat Roberts’ staff (R – Kansas) for a wide-ranging discussion. Sen. Roberts in the Ranking Member of the Senate Ag Committee and hence a very influential person in CMC’s world. Sen. Roberts is focusing his efforts on the Farm Bill, although it is unclear at this time whether this congress will actually pass a Farm Bill. He expects the commodities title to be a contentious one, and he will work to retain crop insurance. He is supporting of a narrow swap dealer definition – he does not want see a grain elevator treated the same as a hedge fund. On the MF Global issue, he is not optimistic that customers will get all their monies back.

National Corn Growers Association (NCGA) on CMC’s Policy Call

A senior executive at NCGA presented their outlook on the 2012 Farm Bill to CMC members on our policy call this week. In addition to discussing his prognosis on the farm bill and the budgetary battles in Congress, the NCGA executive spoke about proposals that various agricultural groups are making to the Senate and House Agriculture Committees as these committees start discussing the farm bill. NCGA’s work on Dodd-Frank issues was also briefly touched upon during the call.

CFTC Wins In President’s Budget Proposal

All the tea leaves indicate the President’s budget proposal is DOA, but don’t throw it in the trash just yet . . . Embedded in the lengthy proposal is a significant increase for the Commodity Futures Trading Commission.  The President supports raising the budget from $205 million in 2012 to $308 million in 2013.  In a budget full of cuts, this is an almost 52% increase largely justified by Dodd-Frank requirements.  Also important is the absence of a user fee from the Administration’s request.  Instead of including it in the budget, the President said he “strongly supports” legislative efforts to fund the Commission with user fees.  CMC, however, is doubtful that this Congress would approve such a proposal.

It is also doubtful the Commission receives a $308 million budget in 2013 as Congressional appropriators significantly undercut the President Obama’s requests.  Regardless, you can be sure Chairman Gensler will make every opportunity he can to push for the dollars to hire more staff and expand investment in technology.  In a document prepared for the Appropriations Committee, Gensler already said the budget request “strikes a balance between important investments in technology and human capital” and said the additional resources are necessary due to the agency’s expanded mission and scope.

Also of note is the Administration’s proposal to partially repeal the 60/40 tax treatment for futures and options trading.  Treasury estimates its repeal could raise $1.2 billion in revenue over five years.  CMC has successfully fought off past attempts to repeal this provision in the past and we will continue to advocate for its retention.