It seems that significant changes to the Commodity Futures Trading Commission (CFTC) are just around the corner, if and when reauthorization of the regulatory body comes up for a vote someday.
On Wednesday, the CFTC’s Acting Chairman Walter Lukken testified before the Subcommittee on General Farm Commodities and Risk, (the title of which alone is testimony for the need to change), and proposed that the Commodity Exchange Act be amended such that the CFTC has four new authorities:
1. Require large trader position reporting
2. Require exempt commercial markets (ECM) to adopt position limits or accountability levels.
3. Require ECMs to exercise self-regulatory responsibility over that contract to avoid manipulation; and
4. Provide the ECM and the CFTC with emergency authority over that contract.
In press statements, the Nymex and the Intercontinental Exchange both came out in support of changes to the current regime, and as they are potentially the most affected by the changes, that is all well and good. The question is now and will be, should this apply to all ECMs all the time? Lukken addressed that issue by adding that “price discovery is the key determinant to Commission regulation and oversight.” But is this the targeted approach that the ICE and Nymex intend to support? Maybe, maybe not.
The other potential major change would be to clarify the CFTC’s regulation of the retail forex market. In Lukken’s testimony, he says he would support changes that would require that “those who participate in the solicitation of retail forex transactions to register with the CFTC,” closing a loop hole that allows them to notice register as securities broker-dealers and trade against customers in off-exchange transactions.
But there is a lingering fear that the CFTC could drive forex dealers out of business, if they are required to be “substantially and primarily engaged in futures transactions,” says Muhammad Rasoul, chief operating officer and executive vice president of Global Forex Trading; that suggestion had been made by representatives from the National Futures Association. “That’s quite a bit over reaching,” Rasoul says, adding that he does support the “narrow fix” proposal articulated in the President’s Working Group report, which would require CFTC registration for forex dealers and close the loop hole. That’s the approach that was included in the CFTC reauthorization bill that was passed by the Congress and the Committee in 2005, but which has languished in the Senate. Now if we could just get those people to vote on it.