CFTC Chair Massad Sends Letter to Congressman Criticizing Legislation to Reauthorize the CFTC
Commentary by Bob Zwirb and Steven Lofchie
In a letter to House Agriculture Committee Chairman Mike Conaway (R-TX), CFTC Chairman Timothy Massad criticized the "Commodity End-User Relief Act" (H.R. 2289). The bill would reauthorize the CFTC for five years. Chairman Massad stated that many of the provisions outlining the CFTC's regulatory powers are unneeded or unduly restrictive, and "would make it harder to fulfill our mission."
The Bill is similar to legislation passed by the House during the last Congress. It would codify and clarify Congressional intent where certain customer protections are concerned, reform the CFTC's operations, amend certain end-user provisions of the Dodd-Frank Act, and make technical corrections to the Commodity Exchange Act.
In particular, Chair Massad expressed concerns regarding the Bill's provisions that are designed to enhance the CFTC's cost-benefit analysis, require compliance with certain administrative procedural requirements, achieve greater global harmonization with foreign regulators over swap rules, and codify into law relief provided to end-users. In the letter, Chair Massad pleaded with the Committee "to keep in mind the principle challenges facing the Commission include resource constraints and bolstering our enforcement and surveillance programs."
See: CFTC Chair Massad's Letter.
Related news: House Agriculture Committee Passes Bill to Reauthorize CFTC and Amend CEA (with Patel and Lofchie Comments) (May 14, 2015).
Commentary
Since becoming head of the CFTC, Chair Massad has emphasized the need to make "adjustments" to the CFTC's implementation of the Dodd-Frank Act. Thus, although it is not surprising that Chair Massad would oppose reforms to the operations of the CFTC that impose procedural requirements on the organization, one may also question whether his opposition is consistent with the adjustments that he concedes need to be made. Is it really good policy to oppose legislative reforms that would improve the CFTC's cost-benefit analysis, since the legislation would expressly address one of the most troublesome shortcomings of the CFTC's Dodd-Frank rulemakings, i.e., the use of lawyers from the General Counsel's office during the first set of Dodd-Frank rulemakings to do such analysis instead of economists - a failing that was heavily criticized by the agency's Inspector General? Combined with the CFTC's official position that the CEA cost/benefit requirement requires the CFTC only to "consider" costs and benefits, not to conduct "a rigorous, quantitative analysis," it seems only reasonable for Congress to require the CFTC to do more and to do it in good faith. Cf. Chamber of Commerce v. SEC, 412 F.3d 133, 143 (D.C. Cir. 2005) (requiring the SEC operating under a similar cost-benefit provision to "determine as best it can the economic implications" of a proposed rule).
Chair Massad also complains that the bill's cost-benefit provision will impose "additional, unworkable standards and creating confusion that is likely to lead to more lawsuits instead of policy grounded in data-driven analysis." But that is exactly why such a provision is necessary as CFTC rulemaking has been all too lacking in "data-driven analysis." As former Commissioner Jill Sommers noted in 2011, the rule proposals that the CFTC issues too often contain "cursory, boilerplate cost-benefit analysis sections in which we have not attempted to quantify the costs." Comm. Jill Sommers, Remarks before OpenLink's 2011 Worldwide User Conference, April 6, 2011.
Regarding protections for end-users, while it is positive that Mr. Massad has given assurances to the Committee that "the Commission will continue to be responsive to commercial end-users," it is important to recognize that it's been a long five years of uncertainty for that sector of the market. Five years from now, there will likely be a new Chair at the CFTC who may not be as responsive. Under the circumstances, it does not seem unreasonable to get this in writing now through statutory codification of such protections.
Commentary
It is hard to argue with the list of items the bill requires the CFTC to consider before adopting a rule. (The cost-benefit requirements are in Section 202, on page 10). Given that the SEC and numerous other regulators are required to consider the costs and benefits of the rules they adopt, it is not obvious why the CFTC should be exempted from this requirement. Rather than opposing the requirement as inconvenient, Chair Massad should make the case as to why: (i) the CFTC should be exempted from performing cost-benefit analyses that other similar government agencies are required to perform or (ii) the list of factors the CFTC would be required to consider is not appropriate (and if that is the case, which factors would be appropriate).