WASHINGTON, D.C. — With proposals of regulatory changes threatening to destabiIize the over-the-counter derivatives market and send it overseas, Agriculture Committee Chairman Bob Smith (R-OR) today introduced legislation to temporarily halt Commodity Futures Trading Commission authority to regulate certain hybrid instruments and swap agreements until Congress resolves the dispute during reauthorization next year.
"Congress created the CFTC in 1974 to be an independent agency under congressional direction, and it was made clear that the authority to resolve questions of this magnitude lay squarely in the hands of elected representatives, and that authority was not to be pre-empted by federal agencies unaccountable to the people. Rest assured that the question of regulating OTC derivatives will be answered, but it would be imprudent to rush to any conclusion outside the boundaries of a free and open public debate. This debate will occur next year when Congress takes up CFTC reauthorization and no sooner," Smith said.
Smith's bill prevents the CFTC from proposing or issuing any rule, regulation, interpretation, or policy statement regulating activity of OTC derivatives. At the same time, it preserves the CFTC's authority to provide exemptive relief and to act in response to a market emergency.
"It's been our position all along that the CFTC should delay any regulations until Congress has an opportunity to review the OTC derivatives market. In light of current circumstances, it appears that this legislation is necessary to ensure the stability of the market," said Rep. Larry Combest (R-TX), Chairman of the Agriculture Subcommittee on Forestry, Resource Conservation, and Research.
"Government regulation is not necessarily the solution to issues within the derivatives market or any market for that matter. Congress needs to have an extensive and open debate on this issue. To act before this occurs would be unwise and endanger this huge and vital financial market," said Rep. Tom Ewing (R-IL) Chairman of the Agriculture Subcommittee on Risk Management and Specialty Crops.
On May 7, 1998, the CFTC issued a concept release intended to gather information and views on the OTC market to use in determining whether the current regulatory approach should continue or be modified. The concept release raised concerns that regulation preceding Congressional review would endanger the competitiveness of U.S. firms in the international financial derivatives market. The CFTC's action also raised jurisdictional questions among government regulators.
Smith represents Oregon's Second Congressional District — which includes most of eastern, southern, and central Oregon. Ewing represents Illinois' Fifteenth Congressional District -- which includes eleven counties in East-Central Illinois. Combest represents Texas' 19th Congressional District which includes the Panhandle, South Plains, and Permian Basin.