Senate Agricultural Committee Passes Commodity End-User Relief Act (with Delta Strategy Group Summary)

The Senate Agricultural Committee passed the Commodity End-User Relief Act, a bill that reauthorizes the CFTC through 2018 and amends certain provisions of the Dodd-Frank Act. The bill passed in a party line vote. The last reauthorization affecting the CFTC occurred ten years ago.

The bill included a requirement that the residual interest requirement of a futures commission merchant ("FCM") be met at the end of the next business day, as calculated at the close of the previous business day (Sec. 104). Another provision treats certain estate property of an FCM as customer property where there is a shortfall of customer property in an FCM insolvency proceeding (Sec. 105). That provision effectively overturns the decision by the U.S. Bankruptcy Court for the Northern District of Illinois in In re Griffin Trading Company, Debtor, 245 B.R. 291 (N.D. Ill. 2000), which held that customers of an insolvent FCM were not entitled to the general assets of an insolvent FCM in the event of a shortfall in segregated customer property. Under current case law, such customers are entitled only to their share of assets that are identifiable or traceable to the customer account.

One adopted amendment, proposed originally by Senator David Perdue (R-GA), clarified that revenue derived from hedging activity is not "financial activity" for purposes of determining whether an entity is "predominately engaged" in financial activity.

During the deliberations, Senator Debbie Stabenow (D-MI) proposed an amendment that would assess a CFTC-funding fee for large market users, such as exchanges and banks, but not for small farmers, ranchers and end users. It failed to pass by a vote of 10 to 9 that divided along party lines. In a separate statement, Chair Massad expressed strong support for this fee-based funding amendment.

Senator Sherrod Brown (D-OH) proposed and, in the end, withdrew four amendments to roll back provisions of the bill that he claimed represented "rollbacks of important Wall Street reforms," including one that would strike a part of the bill requiring the CFTC to conduct a study of the appropriate de minimis exemption level of swap dealing (Section 304).

Earlier in the week, farmers' groups wrote a letter to the regulators in which they urged committee members to pass the bill. The groups argued that the legislation contains a number of important provisions for agricultural and agribusiness hedgers who use futures and swaps to manage their business and production risks.