House Republicans are again trying to use an agriculture spending bill to undermine regulation of financial speculators.
The agriculture appropriations bill passed out of committee this year would relax Commodity Futures Trading Commission (CFTC) oversight of so-called “swap dealers.”
Currently, firms and individuals that trade $8 billion annually in swaps are officially considered dealers by the CFTC. The designation requires them to comply with additional rules, including “disclosure, recordkeeping and documentation requirements,” as Tim Massad, the commission’s chair, noted in February.
The threshold is set to decrease to $3 billion in 2018. But the legislation approved this month by the Appropriations Committee would stop the CFTC from funding those changes.
Democrats on the panel said Monday that “an appropriations bill is not the appropriate place to deal with this issue.”
“We are disappointed that the Committee adopted bill language locking in the swap dealer de minimis level at $8 billion,” Reps. Nita Lowey (D-N.Y.) and Sam Farr (D-Calif.) said in a committee report. “This is the fourth consecutive year in which the Committee has interjected itself into this matter.”
A “swap,” broadly speaking, is an agreement between two parties, in which one will pay the other in the event of a future occurrence. They can be used as a form of insurance by investors—to hedge against future interest rate changes, for example. They can also be used by traders of commodities, like corn and oil, to protect themselves from future price fluctuations.
Speculators similarly use these vehicles for pure gambling—dramatized last year, to popular effect, in the Hollywood blockbuster, “The Big Short.”
Many type of swaps are already exempt from the CFTC’s de minimis threshold, as the commission noted in a November report. Those include swaps to hedge against the depreciation of physical assets.
Government and energy industry officials have estimated that speculation last decade caused oil prices alone to rise at times by between 15-30 percent.
“Global demand remained the primary driver of oil prices from 2000 to 2009,” St. Louis Fed research stated in 2012. “That said, one cannot completely dismiss a role for speculation in the oil bubble of the past decade. Speculative demand can and did exacerbate the boom-bust cycle in commodity prices.”
Lowey and Farr also criticized Republicans on the House Appropriations Committee for not granting CFTC the amount of funding it requested.
“[T]he majority has once again funded CFTC at $250 million, equal to the enacted level in 2015 and 2016 and $80 million below the President’s request,” the pair noted.
Earlier this month, Massad testified that the CFTC needs increased funding, in part, because it hasn’t kept pace with the technology used by financial traders—namely high-frequency trading, which produces massive amounts of information for regulators to sift through.
“We have to to be able to store that data, we have to be able to analyze it,” Massad explained. “We have to write our own programs and software to analyze it the way we want. Plus, we have to have sophisticated professionals who understand these markets.”
