Opening Statement of Chairman Lucas at Public Hearing Defining the Market: Entity and Product Classifications in Title VII of the Wall Street Reform and Consumer Protection Act

Mar 31, 2011 Issues: Dodd-Frank Implementation

Tamara Hinton, 202.225.0184

Today, this Committee continues its series of hearings to review the implementation of the derivatives provisions in the Dodd-Frank Wall Street Reform Act. Already, we’ve heard from diverse market participants, from farmer cooperatives to manufacturers to global financial institutions. Rarely does Congress consider an issue that has an impact on such diverse segments of the economy.

That is why the oversight role of this Committee is so important. And, that is why I’m deeply concerned at the speed with which the CFTC is crafting a new regulatory regime for a marketplace that’s important from the countryside to Wall Street, and for the U.S. economy as a whole.

Under the current timeframe, the CFTC can’t possibly comprehend the cumulative impact over 40 proposed regulations will have on the markets and the economy, or adequately evaluate and weigh the costs and the benefits for each rule. With an economy that is still fragile, and under a directive from the American public that job growth should be our top priority, we simply cannot impose a wave of new regulations that are rushed and poorly vetted.

I have no doubt that today’s hearing will identify potential consequences of a rushed rulemaking process. Dodd-Frank requires several new regulatory designations that will define the market, and very importantly – shape the ability for end-users across the country to affordably hedge their risks. And while Congress gave the CFTC broad discretion in defining key terms, it also directed the CFTC to provide exemptions where appropriate to avoid imposing unjustified and unnecessary costs on market participants.

Yet what we’re seeing, and what I think we’re going to hear today, is that the CFTC has proposed very broad and far-reaching definitions, but very narrow interpretations of the exemptions Congress authorized.

The result of this approach will be a spectrum of market participants subject to a new and sweeping regulatory regime that far exceeds the risks those entities pose to the financial system or their counterparties.

One of Congress’ principal objectives in Title VII was to mitigate risks to the financial system and to prevent another financial crisis. Yet entities that do not come close to threatening financial stability and who had no role in the financial crisis may be regulated in the same way as those that do. That simply doesn’t make sense, and it’s not what Congress intended.

We need to be cautious. The derivatives markets serve an important risk mitigation role across the economy, and we cannot create significant economic disincentives to using these markets – especially for end-users and smaller entities that can least afford the costs of new regulation. We need to make sure we’re not eliminating these tools for commercial hedgers, shifting more of the trading volume to the largest financial players, or sending activity to our competitors overseas.

I look forward to hearing from our witnesses today.