Market Matters Blog

Regulators Are People, Too

The Commodity Futures Trading Commission's relationship with the grain industry is rocky, at best. The House Agriculture Committee reprimanded the Commission's rulemaking process last week by including language in a bill that undid a controversial rulemaking on residual interest, a concept that commercial hedgers argue would cause the cost of hedging to skyrocket.

For the moment, it appears the grain industry dodged an expensive bullet, but the House bill reauthorizing the CFTC has a long journey before it becomes law. The full House must pass the bill; and Senate Agriculture Chairman Debbie Stabenow, D.-Mich., told a group of ag journalists last week that she hopes to bring her bill to a committee vote by the end of the year, if the election doesn't interfere.

House Ag Chairman Frank Lucas, R.-OKla., made it clear he wasn't pleased the bill had to undo what the CFTC did.

"If they (issues) can be addressed as the bill is moving along, they could have been addressed when concerns were raised over the course -- in some instances -- of two or three years before," Lucas said. "So, while some of my friends in bureaucracy in the commission would assure you that rulemaking is the best way to go, I still have this funny idea that Congress needs to draft the laws and that our friends in the bureaucracy are there to implement the laws. But then, the era of the previous chairman is over with, and now we need to enter into a new era."

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Former CFTC Chairman Gary Gensler earned quite a reputation with the ag crowd in Washington. A Financial Times article on Gensler's retirement at the end of 2013 summed him up pretty well: "Gary Gensler is regarded by some as one of the toughest regulatory cops policing Wall Street. Over the past five years, the former Goldman Sachs banker helped transform a sleepy Commodity Futures Trading Commission into a more powerful regulatory force.

"His critics, however, say he has been a bull in a china shop, so unyielding in his push for derivatives reforms that he has left confusion and anger among U.S. lawmakers, overseas regulators and market participants." (For the full article,…)

My impression is Gensler fell into the "bull in a china" characterization for most in ag that worked with him. Very few people want to criticize him publicly, but one of the more mild terms I've Gensler described as is "doctrinaire."

I've also learned that much of the frustration with Gensler was actually directed toward his staff, which I've frequently heard was the most troublesome for ag groups to work with.

So while there's a big, public turnover in CFTC leadership, the turnover in staff is worth noting, too. Some of Gensler's staff will stay at the CFTC, but a fair number are retiring or leaving for greener pastures.

Regulators are people, too. Sometimes it's easy to forget that while a government agency issues rules, real people author it, negotiate concerns and ultimately shape the outcome. It's why the turnover in commissioners and staff matters. It's a chance for CFTC and the grain industry to build new relationships and work towards a better (or worse) relationship.

There's hope the grain industry's relationship with the CFTC will improve when the new nominees are confirmed. The three nominees may lack agriculture experience, but several folks in D.C. have mentioned they seem genuinely interested in making sure the futures markets function properly for commercial participants. So far, Timothy Massad, Chris Giancarlo and Sharon Bowen have left agriculture leaders with the impression they're good listeners that'll be easier to work with than the prior commission. They've acknowledged their lack of background and have been urged to hire knowledgeable staff to support them.

We'll just have to wait and see whether the change of guard at CFTC rekindles warm feels or sparks a nasty break-up.

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