[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

HEARING TO REVIEW THE 2016 AGENDA FOR THE COMMODITY FUTURES TRADING
COMMISSION

=======================================================================

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTEENTH CONGRESS

SECOND SESSION

__________

FEBRUARY 10, 2016

__________

Serial No. 114-40

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Printed for the use of the Committee on Agriculture
agriculture.house.gov

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COMMITTEE ON AGRICULTURE

K. MICHAEL CONAWAY, Texas, Chairman

RANDY NEUGEBAUER, Texas, COLLIN C. PETERSON, Minnesota,
Vice Chairman Ranking Minority Member
BOB GOODLATTE, Virginia DAVID SCOTT, Georgia
FRANK D. LUCAS, Oklahoma JIM COSTA, California
STEVE KING, Iowa TIMOTHY J. WALZ, Minnesota
MIKE ROGERS, Alabama MARCIA L. FUDGE, Ohio
GLENN THOMPSON, Pennsylvania JAMES P. McGOVERN, Massachusetts
BOB GIBBS, Ohio SUZAN K. DelBENE, Washington
AUSTIN SCOTT, Georgia FILEMON VELA, Texas
ERIC A. ``RICK'' CRAWFORD, Arkansas MICHELLE LUJAN GRISHAM, New Mexico
SCOTT DesJARLAIS, Tennessee ANN M. KUSTER, New Hampshire
CHRISTOPHER P. GIBSON, New York RICHARD M. NOLAN, Minnesota
VICKY HARTZLER, Missouri CHERI BUSTOS, Illinois
DAN BENISHEK, Michigan SEAN PATRICK MALONEY, New York
JEFF DENHAM, California ANN KIRKPATRICK, Arizona
DOUG LaMALFA, California PETE AGUILAR, California
RODNEY DAVIS, Illinois STACEY E. PLASKETT, Virgin Islands
TED S. YOHO, Florida ALMA S. ADAMS, North Carolina
JACKIE WALORSKI, Indiana GWEN GRAHAM, Florida
RICK W. ALLEN, Georgia BRAD ASHFORD, Nebraska
MIKE BOST, Illinois
DAVID ROUZER, North Carolina
RALPH LEE ABRAHAM, Louisiana
JOHN R. MOOLENAAR, Michigan
DAN NEWHOUSE, Washington
TRENT KELLY, Mississippi

______

Scott C. Graves, Staff Director

Robert L. Larew, Minority Staff Director

(ii)

C O N T E N T S

----------
Page
Conaway, Hon. K. Michael, a Representative in Congress from
Texas, opening statement....................................... 1
Prepared statement........................................... 2
Peterson, Hon. Collin C., a Representative in Congress from
Minnesota, opening statement................................... 3

Witness

Massad, Hon. Timothy G., Chairman, Commodity Futures Trading
Commission, Washington, D.C.................................... 3
Prepared statement........................................... 5
Supplementary material....................................... 39
Submitted questions.......................................... 45

HEARING TO REVIEW THE 2016 AGENDA FOR THE COMMODITY FUTURES TRADING
COMMISSION

----------

WEDNESDAY, FEBRUARY 10, 2016

House of Representatives,
Committee on Agriculture,
Washington, D.C.
The Committee met, pursuant to call, at 10:00 a.m., in Room
1300 of the Longworth House Office Building, Hon. K. Michael
Conaway [Chairman of the Committee] presiding.
Members present: Representatives Conaway, Lucas, King,
Thompson, Gibbs, Austin Scott of Georgia, Crawford, DesJarlais,
Davis, Allen, Newhouse, Kelly, Peterson, David Scott of
Georgia, Costa, Walz, McGovern, DelBene, Lujan Grisham, Kuster,
Nolan, Bustos, Maloney, Aguilar, Plaskett, Adams, Graham, and
Ashford.
Staff present: Caleb Crosswhite, Jackie Barber, Kevin Webb,
Mollie Wilken, Paul Balzano, Scott C. Graves, Stephanie
Addison, Faisal Siddiqui, John Konya, Liz Friedlander, Matthew
MacKenzie, Mike Stranz, Robert L. Larew, Nicole Scott, and
Carly Reedholm.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
IN CONGRESS FROM TEXAS

The Chairman. Good morning. This hearing of the Committee
on Agriculture to review the 2016 agenda for the Commodity
Futures Trading Commission, will come to order.
Good morning and welcome. Today's hearing is held against a
bleak backdrop for many commodity producers, especially in farm
country. The past 2 years have seen a dramatic fall in
commodity prices across the board, creating significant
operational challenges for producers. It is in uncertain times
that futures and other derivatives markets provide their
greatest benefit to our producers. These markets allow hedgers
to look over time's horizon and see what the collective wisdom
of the crowd says about the future.
The long range price forecasts by futures markets provide
invaluable information to farmers, helping them to decide
whether to plant, what to plant, and how to plant. Those same
prices are used in crop insurance policies that farmers
purchase to protect against risk. Bottom-line, the futures
markets are instrumental in providing risk management to
commodity producers. But, for many, managing risk in the market
isn't as easy as it once was.
Many producers face markets that are more brittle than they
used to be markets with more volatility and less liquidity than
in the past. They also face increased costs to access essential
dealing and clearing services. Some smaller market participants
have been fired by their brokers because the FCM can no longer
afford the regulatory costs of keeping them as clients.
For too many end-users, Dodd-Frank has created more
complicated and more intrusive, and more costly regulatory
mandates that force hedgers to choose between paying more to
manage their risk or risking more to manage their cash. This is
not what Congress intended when it enacted Dodd-Frank. I
believe that my colleagues who supported Dodd-Frank believed
that end-users, the hedgers for whom risk management markets
are an essential business tool, would not be harmed by that
legislation. To that end, I want to commend the Commissioners
for the work they have done to find common ground on reforms to
several important regulations that posed needless burdens to
end-users.
That said, the Chairman's work on end-user issues, I don't
believe, is not done. I am still deeply concerned with the
Commission's position limits proposal and the impact the new
bona fide hedging restrictions will have on agricultural
producers, especially when they are struggling with low
commodity prices. The proposed reg AT also needs significantly
more work to narrow its definitions and eliminate the potential
impact on smaller market participants that should not be swept
up in it.
Finally, the CPA in me cannot close without touching on the
importance of getting to the bottom of the accounting mess the
CFTC finds itself in. First, I want to thank Chairman Massad
for the CFTC's responsiveness to our inquiries on this matter.
The Commission's continued openness will help in this process.
But, I am troubled by the accounting irregularities. Any
mistake is cause for concern, but especially one that goes
unnoticed for years. In this case, the failure of the
Commission's internal accounting systems has led to at least
one law being broken. That is clearly unacceptable, and I look
forward to hearing a plan from the Chairman on how to fix the
problem.
I want to welcome Chairman Massad back to our Committee.
Thank you for putting the time in to prepare for our hearing
today.
[The prepared statement of Mr. Conaway follows:]

Prepared Statement of Hon. K. Michael Conaway, a Representative in
Congress from Texas
Good morning and welcome to the Agriculture Committee's hearing to
review the 2016 agenda for the Commodity Futures Trading Commission.
Today's hearing is held against a bleak backdrop for many commodity
producers, especially those in farm country. The past 2 years have seen
a dramatic fall in commodity prices, across the board, creating
significant operational challenges for producers. It is in uncertain
times that futures and other derivatives markets provide their greatest
benefit to producers. These markets allow hedgers to look over time's
horizon and see what the collective wisdom of the crowd says about the
future.
The long range price forecasts by futures markets provide
invaluable information to farmers, helping them to decide whether to
plant, what to plant, and how much to plant. Those same prices are used
in the crop insurance policies that farmers purchase to protect against
risk. Bottom-line, the futures markets are instrumental in providing
risk management to commodity producers.
But, for many, managing risk in the market isn't as easy as it once
was.
Many producers face markets that are more brittle than they used to
be, with more volatility and less liquidity than in the past. They also
face increased costs to access essential dealing and clearing services.
Some smaller market participants have even been ``fired'' by their
brokers, because the FCM can no longer afford the regulatory costs of
keeping them as clients.
For too many end-users, Dodd-Frank has created more complicated,
more intrusive, and more costly regulatory mandates that force hedgers
to choose between paying more to manage their risk or risking more to
manage their cash.
This is not what Congress intended when it enacted Dodd-Frank. I
believe that my colleagues who supported Dodd-Frank believed that end-
users, the hedgers for whom risk management markets are an essential
business tool, would not be harmed by this legislation. To that end, I
want to commend the Commissioners for the work they have done to find
common ground on reforms to several important regulations that posed
needless burdens to end-users.
That said, the Chairman's work on end-user issues is not done. I am
still deeply concerned with the Commission's position limits proposal
and the impact the new bona fide hedging restrictions will have on
agricultural producers, especially when they are struggling with low
commodity prices. The proposed reg AT also needs significantly more
work to narrow its definitions and eliminate its potential impact on
the smaller market participants that should not be swept up in it.
Finally, the CPA in me cannot close without touching on the
importance of getting to the bottom of the accounting mess the CFTC
finds itself in. First, I want to thank Chairman Massad for the CFTC's
responsiveness to our inquiries on this matter. The Commission's
continued openness will help this process. But, I am troubled by the
accounting irregularities. Any mistake is cause for concern, but
especially one that goes unnoticed for years. In this case, the failure
of the Commission's internal accounting systems has led to at least one
law being broken. That is clearly unacceptable and I look forward to
hearing a plan from the Chairman on how to fix the problem.
I want to welcome Chairman Massad back to the Committee. Thank you
for putting in the time to prepare for this hearing today.
With that, I'd like to yield to Ranking Member Peterson for any
thoughts that he might have.

The Chairman. And with that, I will turn to the Ranking
Member for any thoughts that he might have.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE
IN CONGRESS FROM MINNESOTA

Mr. Peterson. Well, thank you, Mr. Chairman. And thank you,
Chairman Massad, for being with us today.
I am looking forward to hearing more about the Commission's
efforts to harmonize its rules with foreign regulators, create
margin rules as a protection in the uncleared swaps markets,
address cybersecurity and automated trading, and improve data
collection. I would also like to hear the Chairman's thoughts
on the state of the derivatives markets today, given the
fluctuation that we have seen in the market since the start of
the year.
The CFTC's mission is to protect the integrity of the
derivatives markets, and in turn, the CFTC protects not just
our constituents who use these markets, but the economy as a
whole.
So I look forward to your testimony, Chairman Massad. And I
yield back the balance of my time.
The Chairman. I thank the Ranking Member. I do want to
welcome the Honorable Timothy Massad, Chairman of the Commodity
Futures Trading Commission here in Washington, D.C.
Chairman Massad, please begin when you are ready, sir.

STATEMENT OF HON. TIMOTHY G. MASSAD, CHAIRMAN,
COMMODITY FUTURES TRADING COMMISSION,
WASHINGTON, D.C.

Mr. Massad. Thank you, Chairman Conaway, Ranking Member
Peterson, and Members of the Committee. I am pleased to be back
to discuss the CFTC's progress and priorities.
I know that the markets we regulate are extremely important
to your constituents, not just farmers and ranchers, but
businesses of all types that use them to manage risk. We have
been working hard to make sure these markets work well for
them, and to ensure that the problems we saw in the financial
crisis don't undermine their ability to use these markets
effectively.
Over the last year, the CFTC completed most of the rules
required by the Dodd-Frank Act. These rules were enacted in
response to the global financial crisis; a crisis that cost our
country millions of jobs, and inflicted pain on millions of
American families. We are now making sure those rules work as
intended, which includes making adjustments and fine-tuning
them where necessary. In particular, we are working to make
sure they do not improperly burden the American farmers,
ranchers, and businesses who did not cause the crisis. We also
remain focused on our traditional responsibilities of
surveillance, compliance, and enforcement.
I want to thank our hardworking, talented CFTC staff, and
the constructive engagement of my fellow Commissioners Bowen
and Giancarlo. Our progress is due to working together
collaboratively.
Let me highlight a few recent achievements. First, I am
pleased to note that earlier today Commissioner Jonathan Hill
of the European Commission and I announced a common approach
regarding requirements for clearinghouses located in the U.S.
and Europe. This agreement will ensure that European and U.S.
clearinghouses can continue to provide clearing services to
firms in each other's jurisdictions. It will help ensure that
our global derivatives markets remain robust, while keeping our
financial system as stable and resilient as possible. It is
also a significant milestone in our cross-border harmonization
efforts. I would be happy to discuss it in further detail.
Second, the Commission recently approved a strong rule
setting margin requirements for uncleared swaps. Our rule
exempts end-users, and focuses instead on where the greatest
risks exist; that is, between large financial institutions
where the interconnectedness means that one entity's default
could trigger further defaults by others. We are also
addressing cybersecurity, one of the greatest risks to the
orderly operation of our financial system. The Commission
unanimously voted to propose rules requiring companies that run
the core infrastructure under our jurisdiction to adequately
evaluate and protect against the risk of cyberattacks. Also
recently, the Commission unanimously proposed new safeguards
that address the rise in automated and high frequency trading.
Currently, approximately 70 percent of the trading in the
futures market is automated, and our proposal focuses on
minimizing the potential for disruptions that can occur from
automated trading, such as from fat fingers or untested
algorithms. These proposals rely on a principles-based approach
that codifies many industry best practices.
We have also taken many actions to address the concerns of
commercial end-users. For example, we recently eliminated
certain reporting and record-keeping requirements for end-
users. We have made it easier for commercial firms to use
certain traditional types of commodity contracts, and we have
made it easier recently for our small banks and community
development institutions to continue to use these markets
without being subject to new regulations aimed at much larger
institutions.
The CFTC is also continuing to engage in robust enforcement
in order to maintain the integrity of our markets and protect
the public against fraud. We are focused on new, complex forms
of manipulation and spoofing that use automated trading
strategies, as well as conventional frauds, such as precious
metal scams aimed at retirees.
Surveillance is an equally critical function, particularly
given the growth and range of products under our jurisdiction.
To be successful in both surveillance and enforcement, we must
be able to keep up with the technological transformations in
these markets. We must be able to continually receive, load,
and analyze large volumes of data. This requires a massive
information technology investment, sophisticated analytical
tools, and experienced professionals to identify problems.
Our priorities in the months ahead include finalizing our
proposed rules to address cybersecurity and automated trading
concerns. We will continue to focus on the strength and
resiliency of clearinghouses, and take steps to improve the new
framework for trading of swaps. We are also working to finalize
important rules related to position limits to address the risk
of excessive speculation, while making sure participants can
engage in bona fide hedging.
Let me also note, Mr. Chairman, since you raised it, we are
moving to address the lease accounting issues that you raised,
and I am happy to talk about those.
Mr. Chairman, I appreciate your support for many of the
actions we have taken, particularly those to address end-user
concerns, and I look forward to working with you, this
Committee, and with Congress on reauthorization and other
matters in the coming year.
Thank you again for inviting me today.
[The prepared statement of Mr. Massad follows:]

Prepared Statement of Hon. Timothy G. Massad, Chairman, Commodity
Futures Trading Commission, Washington, D.C.
Thank you, Chairman Conaway, Ranking Member Peterson, and Members
of the Committee. I'm very pleased to be back testifying on behalf of
the Commodity Futures Trading Commission (CFTC). I appreciate the
opportunity to discuss the progress and priorities of the agency.
As you know, the CFTC oversees the futures, options, and swaps
markets. While they, and the agency, are not well-known to most
Americans, the importance of these markets to American businesses,
families and the American economy cannot be overstated.
The derivatives markets allow farmers to lock in a price for their
crops, utilities to manage the cost of fuel, and businesses of all
types and sizes to hedge commercial risk. And as a result, they shape
the prices we all pay for food, energy and a host of other goods and
services.
At the CFTC, our job is to ensure these markets are working
properly, by helping to deter and prevent fraud and manipulation. We
strive to create a regulatory framework that promotes transparency,
competition and innovation. This benefits everyone--from the
agriculture community to business owners and investors saving for
retirement. And we try our best to do this in a way that does not
impose undue burdens on those end-users who rely on these markets as an
important component of their business.
Since I last testified before this Committee, the CFTC has made
considerable progress in a number of areas. The Commission has written,
and is working to enforce, most of the rules required by the Dodd-Frank
Act, which was enacted in the aftermath of the worst financial crisis
since the Great Depression. We are also focused on fine-tuning our
rules, so they do not improperly burden commercial end-users. This work
adds to our traditional responsibilities of surveillance, compliance,
and enforcement for the futures and options markets. And we have been
addressing new developments and challenges in our markets, particularly
those created by technological development.
Today, I would like to highlight some of our accomplishments over
the past year and also lay out a number of key priorities for the
months ahead.
Before I begin, I want to thank our staff for their tireless work
on behalf of our mission. I know I speak for my fellow Commissioners
Bowen and Giancarlo when I say that the effort, dedication and
expertise of the CFTC staff are the reasons we've made such strides
this year.
I would also like to thank Commissioners Bowen and Giancarlo for
their dedication. Each brings experience, judgment, and an important
perspective to the work of the Commission. We have developed a
productive working relationship that is grounded in good faith and
mutual respect. I appreciate their willingness to collaborate and work
together constructively.
Recent Accomplishments
The CFTC has taken many actions during the past year to help make
sure our financial markets continue to be the best in the world. There
are several I'd like to talk about today.
Margin for Uncleared Swaps. One of our more recent actions was the
Commission's approval of a final rule setting margin requirements for
uncleared swaps.
Our margin rule is one of the most significant elements of swaps
market regulation set forth in the Dodd-Frank Act. There will always be
a large part of the market that is not cleared--many swaps are not
suitable for central clearing and our clearinghouses will be stronger
if we exercise care in what is required to be cleared. And in the
absence of clearing, margin requirements protect against excessive risk
buildup in the system.
I think the rule we have adopted is strong and sensible. Consistent
with Congressional intent, our rule does not require the collection of
margin from end-users. It focuses instead on where some of the greatest
risk exists--between large financial institutions, where the default of
one entity would lead to further defaults by its counterparties, given
the interconnectedness of our financial system. It requires swap
dealers and major swap participants to post and collect margin with
financial entities with whom they have significant exposures. It
requires initial margin, which is designed to protect against potential
future loss on a default, as well as variation margin, which serves as
mark-to-market protection.
We also worked very hard to harmonize our rule with those
concurrently issued by the Prudential Regulators, as well as with
international standards. Shortly after I took office, I committed to
doing all we could to achieve such harmonization. There were many
differences 18 months ago. Today, I believe we have succeeded.
To determine how our rule should apply to inter-affiliate
transactions, we worked to strike the proper balance between benefits
and costs.
It was important that we mandate appropriate protections to help
ensure the safety and soundness of swap dealers. So, we require full
variation margin be exchanged for all inter-affiliate swaps. We did not
require initial margin for all such swaps, however, which is one point
of difference with the Prudential Regulators. Instead, to prevent
evasion of collection requirements in certain cases, we require initial
margin, and we require posting of initial margin to insured depository
institutions that are swap dealers. We also require that inter-
affiliate swaps be subject to a centralized risk management program
appropriate to monitor and to manage these risks.
We have also been working to address new and emerging threats to
the financial system.
Cybersecurity. Cyberattacks are perhaps the number one risk to
financial stability that we face today. This past year, the Commission
unanimously took action to enhance cybersecurity protection in our
markets. We proposed rules designed to make sure that the private
companies that run the core infrastructure under our jurisdiction--
exchanges, clearinghouses, swap execution facilities and swap data
repositories--are doing adequate evaluation of cybersecurity risks and
testing of their own cybersecurity and operational risk protections.
They address concerns related to information security, physical
security, business continuity and disaster recovery. The proposals set
principles-based testing standards, which are deeply rooted in industry
best practices.
The proposals identify five types of testing as critical to a sound
system safeguard program: vulnerability testing, penetration testing,
controls testing, security incident response plan testing and
enterprise-wide assessment of technology risk. Such efforts are vital
to mitigate risk and preserve the ability to detect, contain, respond
to, and recover from a cyberattack or other type of operational
problem.
Before adopting final rules, we will carefully consider any
feedback we may receive. We hope to finalize these important rules
before the end of this year.
Internal Cybersecurity. I would note, that in addition to guarding
against technological threats among the entities we regulate, we
continue to be vigilant regarding our own cybersecurity. A draft report
set to be released by the Office of Management and Budget in March
underscores our commitment, and our success. The draft report grades
Federal agencies in meeting cybersecurity performance goals, and I'm
pleased to report that of all small agencies reporting, it ranks the
CFTC among the top five, receiving a compliance score of over 90
percent.
We continue to do all we can to build and enhance our systems with
our limited resources. For example, we are participating in the
Department of Homeland Security's Continuous Diagnostic Mitigation
Program, we have increased advanced malware defenses and we are
implementing new data loss prevention technology this year.
Proposed Rule on Automated Trading. Let me turn to another area
where we are responding to technological change. Last November, the
Commission unanimously proposed rules to address the increased use of
automated trading. Today, almost all trading in our markets is
electronic, and approximately 70 percent of trading in the futures
market is automated.
Automated trading has brought many benefits to market
participants--such as more efficient execution, lower spreads and
greater transparency. But its extensive use also raises important
policy and supervisory questions and concerns.
Our proposed rule focuses on minimizing the potential for
disruptions or other operational problems that can be caused by
automated trading. These could occur from fat fingers, untested
algorithms or in other ways. Our proposal builds upon the steps we and
the exchanges have already taken on this front. It relies on a
principles-based approach that codifies many industry best practices.
Our proposal requires pre-trade risk controls such as message
throttles and maximum order size limits, and other measures such as
``kill switches,'' which facilitate emergency intervention in the case
of malfunctioning algorithms. But it does not prescribe the parameters
or limits of such controls, because we believe market participants are
the ones who should determine those specifics. Our proposal sets
general requirements pertaining to the design, testing and supervision
of automated trading systems, but again it leaves the details of those
to market participants.
We have proposed requirements at the exchange level as well as at
the clearing member and trading firm levels. This, too, is a best
practice suggested by many firms. We have proposed requiring
proprietary traders who access the market directly and who are using
automated trading to register with the CFTC. And we have included
measures to limit the practice of self-trading.
We hope to finalize this rule in 2016 as well.
Continuing to Support Commercial End-Users
Let me turn now to some concerns of commercial end-users. Since I
took office, I have made it my priority to do all we can to ensure
commercial end-users can use these markets efficiently and effectively.
I know Commissioners Bowen and Giancarlo share that view. Commercial
end users did not cause the financial crisis, and were not the focus of
Congressional reforms. So, as we take the necessary steps to create
sensible regulation of these markets, we must make sure end users do
not face undue burdens.
Over the past year, the Commission has taken many actions to
address the needs and concerns of commercial end-users.
Simplifying record-keeping Requirements. In mid-December, we
adopted significant changes to a rule that will reduce record-keeping
obligations for commercial end-users. This final rule, unanimously
approved by the Commission, amends record-keeping requirements set
forth under Commission Regulation 1.35. This regulation, first
implemented in 1948, requires various types of market participants to
keep written and oral records of their commodity interest and related
cash or forward transactions. It is very important to our efforts to
ensure our markets are strong, transparent, and operate free of fraud
and manipulation.
We revised the rule so that members of exchanges and swap execution
facilities not registered with the Commission, such as end-users, do
not have to keep pre-trade communications or text messages. Further, we
have simplified the requirements for keeping records of final
transactions. The amended rule also states that commodity trading
advisors do not have to record oral communications regarding their
transactions.
The rule strikes an appropriate balance between the costs of
record-keeping and the benefits to market oversight. It reduces the
burden on businesses, farmers and ranchers that depend on the
derivatives markets, and will ensure that they are able to continue
using these markets effectively and efficiently. Our final rule
reflects the input we have received by many commercial businesses and
other market participants.
Volumetric Optionality. In addition to our recent action with
respect to trade options, the Commission also clarified when certain
agreements that include volumetric optionality provisions are forward
contracts, rather than swaps. These types of contracts are widely used
by a variety of end-users, including electric and natural gas
utilities. By clarifying how these agreements will be treated, the
interpretation is intended to make sure commercial companies can
continue to conduct their daily operations efficiently.
Relief for Small Banks and CDFIs. A few weeks ago, CFTC staff
addressed the concerns of our community development financial
institutions (``CDFI'') and small banks with under $10 billion in
assets. Staff's action made clear that these entities may choose not to
clear a swap subject to the CFTC's clearing requirement, provided that
they elect the end-user exception and comply with certain other
conditions.
These actions complement a number of steps we took earlier to
address end-user concerns.
Public Utility Companies. For example, the Commission amended its
swap dealer rules so that local, publicly-owned utility companies can
continue to effectively hedge their risks in the energy swaps market.
These companies, which keep the lights on in many homes across the
country, must access these markets efficiently in order to provide
reliable, cost-effective service to their customers.
Customer Protection/Margin Collection. The Commission also
unanimously adopted a change to the ``residual interest'' rule. This is
an important aspect of our customer-protection related rules, designed
to help prevent future insolvencies like the failure of MF Global--and
to protect customers in the event it does happen. To address a concern
of many in the agricultural community and many smaller customers
regarding the posting of collateral for their trades, we removed a
provision that would have automatically changed the deadline for
futures commission merchants to post ``residual interest,'' which, in
turn, can affect when customers must post collateral.
We also expect to have a roundtable soon on the issue of how this
rule is working in practice. We'll have more to say about that in the
near future.
Reporting Requirements for Contracts in Illiquid Markets. Finally,
CFTC staff also granted relief from the real-time reporting
requirements for certain less liquid, long-dated swap contracts. Staff
agreed to permit slightly delayed reporting so that the reporting
requirements do not make it more difficult to hedge.
These are just some of the actions we have taken to make sure these
markets work for commercial end-users. And during my tenure, I intend
to continue to remain focused on their concerns.
Improving Data Reporting
The CFTC is also taking important steps to ensure that the swap
data we receive is accurate, consistent and useful.
Reporting of swaps transaction data was a key goal of the reforms
agreed to by the leaders of the G20 nations, and one of the most
important components of the Dodd-Frank Act. We have come a long way
since the fall of 2008, when a lack of reporting meant neither
regulators nor market participants could assess the exposures or
interconnectedness of major institutions. The reforms we have
implemented have given better information to regulators and greater
transparency to market participants.
But building an efficient system to collect and analyze data from
this market is an enormous undertaking, and there is more work to do.
Currently, for example, there is considerable variation in how
different participants report the same fields to SDRs, and in how the
SDRs themselves transmit information to the CFTC. When the rules were
first written, we purposely didn't prescribe exactly how each field
should be reported--for a number of reasons. First, when the agency
issued the reporting rules, we didn't yet have any data to inform our
views. And second, we expected the industry to develop standardized
terms. That, unfortunately, did not happen.
So in December, CFTC staff requested public comment on technical
specifications for the reporting of 120 priority data elements. We are
seeking public input on this, which culminated months of work to
identify priority areas where standardization or clarification is
needed.
In addition, last year we proposed clarifying reporting obligations
with respect to cleared swaps. This will ensure that as swaps are
cleared, there is a simple, consistent process for reporting them. The
proposal will help ensure that there are not multiple records of a swap
that can lead to erroneous double counting, and that accurate
valuations of swaps are provided on an ongoing basis. It will eliminate
unnecessary reporting requirements, reduce reporting costs and improve
data quality. And it will enhance the Commission's ability to trace
swaps from execution through clearing.
We are also leading international efforts on data harmonization.
And finally, we will continue to take enforcement actions to ensure
that participants honor their reporting obligations.
De Minimis Threshold. Despite the need for more progress on data
reporting, it's important to acknowledge how far we've already come. An
important example of this is the preliminary report CFTC staff recently
released on what is known as the ``de minimis threshold'' for swap
dealing and major swap participants.
The de minimis limit was set by the CFTC and the Securities and
Exchange Commission's joint rule defining swap dealers. If an entity
engaged in swap dealing exceeds that threshold--which is currently $8
billion in notional amount of swaps over the year--it must register as
a swap dealer, in which case capital and margin requirements as well as
disclosure, record-keeping and other requirements apply. The rule also
provides that at the end of 2017, that level will fall to $3 billion,
unless the Commission takes action.
When our two agencies wrote the ``de minimis exception'' we did it
with limited data.
But we now have a wealth of information that we can use to inform a
discussion about what is the appropriate level at which to set the de
minimis threshold. In November 2015, our staff issued a preliminary
report that aims to start that conversation, by taking a fresh look at
the issue. The staff's preliminary report does not make a
recommendation as to what the level should be. It instead explores the
issues, and invites public comment on the data, the methodology and the
issues discussed.
The comment period on this study recently closed. We will now begin
the process of carefully studying the feedback we've received,
producing a final report, and making a decision on what, if any, action
to take.
Priorities for the Months Ahead
The year ahead will also be marked by continued progress at the
CFTC. Moving forward, an important part of our agenda will be to
finalize the various proposals I have noted--in particular,
cybersecurity and automated trading.
In addition, we will be taking action on a number of priorities
that are important to this Committee.
Trade Options. Continuing with our effort to address end-user
concerns, I plan to soon ask the Commission to adopt proposed rule
changes related to trade options, which are a type of commodity
options. This proposal would eliminate the obligations of commercial
participants to report trade options to swap data repositories. It
would include eliminating the requirement to file ``form TO.''
I strongly support finalizing this proposal. Trade options products
are commonly used by commercial participants, and this relief will help
them continue to do so efficiently. Many of the comments we received on
the proposal were supportive, and several asked us to consider further
eliminating some requirements on commercial participants. While I
cannot speak for my fellow Commissioners, I am optimistic that we can
be responsive to some of those requests, and hope this can be completed
in the near future.
Related to trade options, we have also heard comments regarding
peaking supply and capacity contracts. There has been some concern over
the appropriate treatment of these products, which many end-users rely
on to ensure they have the appropriate supply of commodities needed to
run a business, manufacture a product, or generate electricity. I have
asked CFTC staff to look at this. And while again, I cannot speak for
my fellow Commissioners, I would support the Commission providing
guidance or otherwise addressing this issue.
Continued Focus on Clearinghouse Resiliency. We will remain keenly
focused on preventing excessive risk and promoting stability in the
financial system. A primary focus here will be clearinghouse strength
and resiliency generally. As you know, clearinghouses play a critical
role in the global financial system--one which has only become more
prominent since the enactment of Dodd-Frank. We have taken many actions
already to address resiliency, but there is much more to do. There are
considerable efforts going on domestically and internationally to look
at a range of issues to make sure clearinghouses are strong and safe.
This includes, in particular, stress-testing standards for CCPs, and
recovery and resolution planning.
We are also chairing the international working group that is
looking at a variety of issues, including stress-testing, margin
methodologies, and capital and recovery planning. It also includes an
examination of interdependencies among global clearinghouses. It's very
important to do this in a manner that supports the liquidity of these
markets.
On the subject of clearinghouses, let me note that last week, the
Commission announced the approval of the registration of Eurex Clearing
as a clearinghouse. Eurex Clearing is one of the largest clearinghouses
in Europe, and we are pleased they have registered with the CFTC. This
is an important step forward to enhance global clearing and
harmonization of derivatives rules.
In addition, we are continuing to work with the European Commission
(EC) on the issue of ``equivalence,'' so that European firms can
continue to do business with our clearinghouses. I have always believed
there is an ample basis for the European Commission to declare us
equivalent.
It is important that a determination of equivalence happen soon,
particularly because the European clearing mandate is scheduled to take
effect in a few months, and it's vital that we avoid market disruption.
I know my counterpart on the EC, Commissioner Jonathan Hill, shares
that concern and wants to bring this to closure. So I'm hopeful they
will act and a determination will be issued soon.
Cross-Border Margin Rule. Soon, I will ask the Commission to adopt
the staff recommendation on the cross-border application of our new
rules on margin for uncleared swaps. In June of last year, the
Commission unanimously approved a proposal on this issue, an important
component of our margin rule. It addresses risk that could be created
outside our borders, but still could jeopardize our financial stability
and our economy.
I believe our final rule will draw a reasonable line that makes
clear when we should take offshore risk into account. As with our
broader margin rule, our proposal also recognizes the importance of
harmonizing rules with other jurisdictions.
Revised Capital Rule. In addition, the staff is working on updating
our proposed rules related to capital requirements for swap dealers and
major swap participants. As with the margin rules, we're working with
our fellow regulators--in this case the Prudential Regulators as well
as the SEC--to harmonize these standards as much as possible.
Improving SEF Trading. Further, we will continue to focus on
improving swaps trading.
Over the past 2 years, we have implemented a new framework for
trading on regulated platforms. This is bringing greater transparency,
better price information and greater integrity to the process. In fact,
a recent paper put out by the Bank of England confirms that the
improvements in transparency caused by trading on SEFs has led to lower
costs and increased liquidity.
I'm very pleased that just a couple of weeks ago, the Commission
announced permanent registration status for 18 swap execution
facilities (SEFs) Indeed, the volume of SEF trading is growing. But
there is more to do to fine tune our rules to improve SEF trading. Our
goal is not just to implement the trading mandate in the law and
achieves the basic goals of transparency, fairness and integrity in
trading--but strive to create conditions in which participants want to
trade on SEFs.
Over the past several months, we have taken action to ensure more
flexibility regarding acceptable modes of execution. We have improved
SEF confirmation practices and confirmation data reporting. We have
clarified SEF capital requirements. We provided relief related to
executing block trades and correcting erroneous trades. And we've
issued no-action relief to provide market participants additional time
to adapt to procedures for executing package transactions.
This spring, I will ask the Commission to consider changes to our
rules to enhance trading and participation. I expect this will include
formalizing a number of the ``no action'' letters and guidance staff
issued over the past 18 months through rulemaking proposals.
We will also consider some additional changes, such as the ``made
available to trade''--or MAT--determination process. This identifies
products that must be traded on SEFs. Some market participants have
suggested that the Commission play a larger role in this process, and
we are considering it.
Finally, we will be looking at ways to harmonize our rules further
with those of other countries. In particular, we are working with the
European Commission, European Securities and Markets Authority and the
Financial Conduct Authority regarding differences between our rules and
European rules.
Europe's rules are still evolving, and have not yet been
implemented. But I am hopeful that as their rules take shape, and as we
look for ways to fine tune ours, we can work together to ensure greater
harmonization.
Position Limits. In addition, the Commission continues to work on
finalizing important rules related to position limits.
I know there is great interest in these rules--and some concern.
None of us currently on the Commission were in office when these rules
were proposed, and therefore we are taking time to listen to end users
and other market participants and consider the proposals very
carefully. This is particularly the case regarding concerns about bona
fide hedging. We understand the significance of these rules to the
ability of commercial end-users to continue to use the markets
efficiently for risk management and price discovery.
We recently proposed to modify the aggregation provisions of the
rules. These changes are designed to streamline the process for waiving
aggregation requirements when one entity does not control another's
trading, even if they are under common ownership.
We are also considering the possibility of further modifications,
which would have the exchanges play a greater role in granting
exemptions for non-enumerated hedges. We have discussed this at our
advisory committee meetings and we are continuing to study it. We're
also continuing to gather information on deliverable supply estimates
so that limits are set appropriately.
Working to Implement New Congressional Changes. In addition, we
have begun working to implement recently-enacted Congressional changes
related to indemnification and to ``centralized treasury units'' or
CTUs. As you know, the law ensures that an end-user company that uses a
CTU to streamline and manage all its derivatives activity would
continue to be exempt from margin and clearing requirements that are
designed for financial institutions. Congress also removed the
requirement that other regulators seeking access to Swap Data
Repositories (SDR) provide a written indemnification agreement to the
SDR. And CFTC staff are working to incorporate these changes so as to
facilitate data sharing. Moreover, we will continue to work with
Congress on a CFTC reauthorization measure.
Enforcement
Finally, robust enforcement is vital to maintaining the integrity
of our markets. It has been, and will remain, a priority.
Our enforcement division has continued to do an excellent job
protecting customers, preventing fraud and manipulation--and holding
entities accountable for misbehavior. In the past year, we have brought
or resolved actions related to integrity of benchmarks. We're working
to identify new and improper behavior--such as spoofing--and have
brought cases against bad actors for their attempts to manipulate the
markets. We've confronted scams that target retirees, Ponzi schemes
that target investors, illegal precious metals transactions, and fought
for consumers whose customer funds were misappropriated.
Over the past fiscal year, the CFTC's total monetary sanctions
topped more than $3.2 billion. That number is more than 12 times the
CFTC's budget for Fiscal Year 2015. And over the past 5 years, the
Commission collected fines and penalties of approximately four times
its cumulative budgets. We will continue to focus on robust
enforcement.
Resources
Finally, let me just say that with the many things on our agenda,
our desire to be responsive to the concerns of lawmakers, end-users and
other market participants, is seriously impaired by our current level
of resources at the CFTC.
We are very grateful for the increases we have previously received.
Our Fiscal Year 2015 budget provided us an increase of $35 million over
the previous year. This was essential to improving our ability to carry
out our mission. We have used these resources judiciously to support a
number of activities, including modernizing our information technology
capabilities and bolstering our staff in critical areas.
But as you know, our responsibilities were greatly expanded after
the crisis, and our markets have grown enormously in size, importance
and technological complexity. Our budget is not commensurate with the
scope of our responsibilities. As a result, it has become increasingly
challenging to carry out our duties at our current funding level.
For example, without sufficient funding, the CFTC cannot modernize
its information technology and data collection systems sufficiently to
keep up with the markets, nor hire the personnel necessary meet its
responsibilities in a timely manner. As a result, the Commission will
be less proactive, less flexible, and less responsive than we need to
be. It hurts our ability to fine-tune rules appropriately, and it
impacts our ability to perform our surveillance and enforcement duties
in a thorough and efficient manner. This can have consequences for
businesses, consumers and the broader economy.
Conclusion
Thank you again for inviting me today. Let me close by saying that
I believe the United States has the best financial markets in the
world. They are the strongest, most dynamic, most innovative, and most
competitive--in large part because they have the integrity and
transparency that attracts participants.
The CFTC is committed to working with you and doing all we can to
further enhance those qualities. Thank you for your assistance in this
work. I look forward to your questions.

The Chairman. All right, thank you, Chairman Massad. I
appreciate that statement.
The chair would remind Members that they will be recognized
for questioning in order of seniority for Members who were here
at the start of the hearing. After that, Members will be
recognized in order of arrival. And I appreciate the Members'
understanding.
With that, I recognize myself for 5 minutes.
Again, Chairman, thank you for being here. This has been a
bad year for agriculture. We have had a century-long drop in
prices over the last 2 years, 55 percent reduction in farm
income. Can you tell us what your staff at the CFTC is doing to
help understand the full weight and the full cost of its
regulations on the agriculture community? And this, I don't
mean just the direct costs, but also reduced services,
decreased liquidity, fewer FCMs, the full gamut, of our folks
trying to access these tools for risk management in the face of
the pretty daunting challenges that they are facing?
Mr. Massad. Certainly, Mr. Chairman. Well, these have been
challenging times. We have seen a lot of volatility as well as
a decline in prices. And obviously, we don't have an effect on
prices, but to answer your question, we are certainly very
cautious of making sure that the businesses that need these
markets, and in particular, smaller businesses, and farmers and
ranchers, can continue to use these markets effectively to
hedge their routine risk. And that is why we have addressed
many of what I have called these end-user concerns. We have
taken steps to reduce record-keeping requirements. For example,
we recently amended our Regulation 1.35 to reduce record-
keeping requirements. We have focused on the residual interest
rule and changed that, which went to when customers must post
margin. So that is not too onerous. We have reduced reporting
requirements, and we have a proposal on the table right now
that concerns trade options, to make sure businesses can
continue to use trade options.
You raised the question on clearing members. I am very
concerned about the robustness of the clearing member industry.
We want to make sure we still have a very robust clearing
member industry that market participants can still access these
markets. So I have spoken out about this and am happy to
discuss some of those issues.
Let me also note that I noted that we have announced this
agreement with Europe on transatlantic CCPs, and throughout
this process I have been very focused on making sure that
whatever agreement we reached did not raise costs unnecessarily
in our markets. And that is where we landed. At the end of the
day, for example, there won't be any change to customer
margins, and, in fact, we excluded agricultural contracts from
even the changes that apply to what we call house margin.
The Chairman. I understand, Timothy, all of the things that
you have done are great if I can get into the market, but if I
no longer have access to the market because the overall
regulatory burden on the FCMs, on all these other institutions,
and the capital regimes, everything else that is happening,
they have basically excluded me because they can't make money
on my trades. How does that help me stay in, to access these
markets, if this overall burden on the folks that I try to go
to have pushed them to a point where they can't service my
account?
Mr. Massad. Well, there are a number of factors influencing
the clearing member industry. For example, if you look at the--
people have talked about the decline in clearing members. That
goes way back. That has been a 10 year trend. It predates Dodd-
Frank. And it has to do with just the challenges of this
business, particularly in a low interest rate environment. I
don't think a particular----
The Chairman. But is there sensitivity to--I got that, but
is there sensitivity to the impact that the regulatory schemes
have on making that environment even more challenging?
Mr. Massad. Absolutely. And I have talked about this
publicly, you raised the capital requirements issue. A key
thing there for clearing members is the effect of the
supplementary leverage ratio on clearing. And I have spoken out
about this. This is, of course, a regulation of the bank
regulators, but I do think it is not properly measuring the
exposure of clearing members, and, therefore, it is having a
potentially very adverse effect on clearing. And that is the
reason we are hearing that clearing members are dropping
customers. I have had meetings with clearing members. They say
your customer protection regulations, for example, that came
out after Dodd-Frank, those were a very good thing, we are all
for those, what they are really focused on is the SLR.
The Chairman. Right. Can you real quickly, on the leasing
issue, if you have any Antideficiency Act violations, will you
report those on a timely basis?
Mr. Massad. Absolutely. Yes, we can.
The Chairman. And there may be some other Members who want
to go into the overall impact that that has, but again, thank
you for being here.
With that, I will recognize the Ranking Member for 5
minutes.
Mr. Peterson. Thank you, Mr. Chairman.
Could you expand a little bit on the agreements you have
with the Europeans on clearinghouses?
Mr. Massad. Certainly. Certainly. So this agreement will
resolve the issues pertaining to whether Europe would recognize
our CCPs, which is necessary for European firms to continue to
do business on U.S. CCPs. And we went through a very detailed
analysis comparing our regimes. I, of course, have spoken out a
lot about this. I thought there was an ample basis for them to
recognize us a long time ago. They wanted to use this as an
opportunity to look at ways to harmonize our regimes a little
bit. And so we have agreed on a few steps. And like any
agreement, it is a good compromise. Each of us will take some
actions. On the customer margin practices, in other words, the
practices of our CCPs when it comes to what they charge
customers, those essentially won't change. We showed Europe--
they were first concerned that their system might produce more
margin. We showed that actually ours generally produces more
customer margin to the CCP than theirs, and they are
considering allowing their CCPs to move toward ours in that
respect.
On the house side, in other words, the clearing members'
proprietary accounts and positions, they have a slightly higher
standard with respect to one key element of setting those
margins than we do, and our CCPs that want recognition will
need to show that they are collecting sufficient margin that is
comparable to what they would under the European standard.
There are some other aspects to the deal. We have agreed to
propose to the full Commission what we call a substituted
compliance determination, which is simply recognizing that
European firms can comply with our rules in many respects by
showing that they comply with the comparable European
requirements. This is a very good step forward. It is something
we have done in other areas already. And as I said, we have
exempted agricultural contracts from the conditions that our
CCPs need to meet with respect to house margining practices,
and that is because these contracts really don't involve
international competition, they are very focused on the U.S.
market, and that was important to us, again, because I wanted
to make sure this deal did not result in higher costs,
particularly for our smaller customers in these markets.
Mr. Peterson. So the stuff I have been reading about, these
clearinghouses not being able to clear in one country, all that
stuff is going to go away?
Mr. Massad. Yes. We should be able to implement this on a
timely basis. I think market participants can continue to clear
with confidence. I have gotten assurances from the European
Commission and from ESMA that they are prepared to implement
this in a timely basis. And I know our CCPs have to do certain
things to do that, but I know they are ready to do that also.
Mr. Peterson. So this Office of Financial Research of the
Treasury report, about the increased systemic risk caused by
moving the swaps into central clearing, we understood that we
were potentially moving this risk to the clearinghouse that if
they screw something up, they could put the clearinghouse at
risk, is that what they are talking about here?
Mr. Massad. Well, that is essentially what----
Mr. Peterson. I mean there is not much----
Mr. Massad.--what they are talking about, but even the OFR
would say--I know Richard Berner, the Director, would agree
that the steps we took to move certain types of contracts on to
central clearing were good steps, that made sense, because we
can much better monitor and mitigate that risk. Having done
that though, we simply have to engage in increased vigilance
over these CCPs, make sure they are always strong and
resilient, and that is what we have been doing. We have
overhauled our regulations in this respect, we have
strengthened transparency, we have strengthened customer
protection, and we are working with other regulators around the
world, not just domestically but around the world, on these
issues of CCP resiliency.
Mr. Peterson. So do they think that you haven't done enough
there to----
Mr. Massad. No, they are just raising it because they agree
it is an important issue, and they want to help and they have
offered their help, and we appreciate that.
Mr. Peterson. Okay. Thank you.
Thank you, Mr. Chairman.
The Chairman. The gentleman yields back.
Mr. Lucas, for 5 minutes.
Mr. Lucas. Thank you, Mr. Chairman.
Chairman Massad, I am very pleased with both your statement
this morning and your pronouncement about the equivalency, and
the assurance you have given us now. That is a big step in the
right direction. My understanding was if we had not been able
to achieve this, potentially the 21st of February might have
been a key date when we were cut off, in effect.
You expanded on the things that we have come to an
agreement with. Are there still areas where perhaps there is a
different perspective between us and our European colleagues?
Mr. Massad. No, I don't believe so, Congressman. Not on the
question of this whole equivalence and recognition process.
Truthfully, it took a lot longer than I thought it would or
should. Frankly, I thought we would be able to announce this a
lot sooner, but sometimes it just drags on, as you well know,
but I am glad we got here. And again, market participants can
continue to clear with confidence.
Mr. Lucas. Changing topics briefly, Mr. Chairman. One of
the advantages of the dynamic leadership of the Committee and
the 114th Session of Congress is, in addition to two good
Aggies leading the place, we both are CPAs, so we probably have
a better focus on the financial details than maybe any
Committee in recent times on the Agriculture Committee. Could
you discuss with us for a moment this topic about leasing
issues and your facilities in New York City, and the IG's
comments and the cost and all that kind of thing? Could you
expand for just a moment on that situation? And I realize that
the leases were done prior to your tenure as Chairman, as I
understand it.
Mr. Massad. Yes. Absolutely, Congressman. So the issue on
accounting for leases is this--when the agency first entered
into multiyear office leases, which goes way back to 1994, it
accounted and obligated the current year payments, the first
year payments, in its financials, and it obligated that amount,
and it disclosed all the future payments, every single year, in
a footnote to its financials. It continued to follow that
practice for years. That practice was signed off on by various
accounting firms, including KPMG, the most prominent accounting
firm. The GAO started looking at some things last fall and said
we have some questions. We promptly looked into their
questions, we worked with them, and they concludes that, no,
what you should have done when you enter a multiyear lease is
you should obligate the entire amount, all those future year
payments. If it is a 10 year lease, you take the sum of those
10 year payments, and you have to obligate that amount in the
first year, and you have to account for that amount, not just
in a footnote but on the financial statements itself. And once
they said that, we said okay, well, we will work to fix it. We
notified our auditors as well as the Inspector General, who
also had signed off on this practice, hadn't noticed any
problem, and we came to Congress when GAO first raised this.
So that is where we are. As I say, we will work with GAO
and OMB to address this. I want to fix it. It is important that
we be fully in compliance.
But let me say, this was not an issue of the facts not
being known. The facts about our leases and our lease payments
were fully disclosed in the footnote. It is not an issue about
having an internal system that didn't keep track. We knew what
the lease costs were, we knew what the lease terms were, and
all that was provided, again, to our outside auditors. It was,
however, an incorrect practice with respect to both accounting
and Federal appropriations law obligation practice.
Mr. Lucas. Is it fair to say that there was some point in
the report where it noted perhaps even the circumstance where
there are a couple of rooms in the lease that management wasn't
aware that were a part of the lease, those kind of things have
been addressed?
Mr. Massad. Okay. That is a separate issue where the IG has
looked at whether we have excess space. And let me say on that,
when I first took office, within about 2 weeks I went to Kansas
City and looked at our office space, and it was clear to me we
did have excess space, and we immediately contacted the
landlord and offered it back. We have a limitation. We cannot
just sublease on our own to anybody. We can't do that. So we
have to go to the landlord. So we did that in Kansas City, and
we have done that in New York as well. Our overall lease
occupancy is about 85 percent, but we are working to try to get
the landlord to take back the office space. We do have some
disagreements with the IG on the calculation. I think the IG
felt there were certain rooms we could use that we didn't feel
we could really use, but we are certainly working to the extent
that if we can give back any space, we are happy to do it.
Mr. Lucas. Just remember, Chairman Massad, my CPA friends
are watching. Thank you, sir.
I yield back, Mr. Chairman.
The Chairman. The gentleman yields back.
Mr. Scott, for 5 minutes.
Mr. David Scott of Georgia. Thank you. Chairman Massad,
good to have you with us.
First of all, I want to share with you some concerns I have
with the possibility of lowering the de minimis level. First of
all, it could have some damaging consequences if we lower that.
One, it would limit our banks' ability to provide good risk
management solutions for bank customers. And the other thing
that it would do is it would raise the cost of providing the
hedges that are so important for risk management as well.
So my question to you is, in view of my concerns, you will
not lower that level from $8 billion?
Mr. Massad. So thank you for the question, Congressman.
Here is what we have done on that. I asked our staff to do
a study of the effect of lowering that level. As you know, the
way the rule was written back when the SEC and the CFTC drafted
this rule several years ago, was they set it at $8 billion
initially, and provided that it would automatically fall to $3
billion at the end of 2017. I asked our staff to do a study of
that now that we have some data, the agencies didn't really
have any data when they first wrote the rule. We hadn't--no one
had data on the swap market. Now we have some data. So we put
out a preliminary study that looked at what the effects would
be as best we could. We have gotten some comment on that study.
A lot of good public comment. We are evaluating those comments.
We are going to finalize the report, and then that will put the
Commission in a place, it will have the facts and the analysis,
where we can decide whether to take action and what action to
take. So we are trying to do this all on a timetable that
works, in light of the timetable of the regulation as it is
written today.
Mr. David Scott of Georgia. Well, I want to register my
deep concern and urge you not to lower it----
Mr. Massad. Okay.
Mr. David Scott of Georgia.--because, from my own
calculations, it would have a devastating effect on our banks'
ability to be able to help their customers hedge, and on their
ability to be able to effect good risk management. That is the
whole purpose of it.
Mr. Massad. Yes.
Mr. David Scott of Georgia. And if the banks are having
that, then we need to listen to their concerns. So I would be
very pleased if you would keep me apprised. And I have some
information as well that I could share with you where it would
be a devastating impact.
Mr. Massad. Fine, Congressman.
Mr. David Scott of Georgia. Thank you.
Mr. Massad. I would be happy to keep you apprised, and look
forward to whatever information you want to give us.
Mr. David Scott of Georgia. As you know, over in Financial
Services, when we last talked--I serve on Financial Services
too, I spoke to you about the deep concerns we had about the
failure of the European Union to give us fair harmonization and
equivalency. First, this didn't just start, it started last
year in the spring, in the summer. It has been kicked down the
road. We still didn't have equivalency. We set the date for
December. Still didn't have it. And now you are coming to us
and saying that you have it and you are satisfied. And I don't
question that, but I am wondering why did they put the United
States' clearinghouses and exchanges through this doubt that,
in effect, really--when you raise doubt and you have a period
of time where that doubt is registered in a very competitive
rural market, my point is, was there any damage done because of
their failure, in taking so long? So I am wondering as to why
they did it in the first place when they knew we had the
equivalency, they went ahead and they gave the equivalency and
harmonization to Singapore and other areas that had our same
rigid regimes. And then I want to know did it cause any damage
to our competitiveness for our United States businesses in
dealing with cross border.
Mr. Massad. I don't think it caused any damage to our
competitiveness or the strength of our CCPs. It probably took a
few years off of some of my staff who had to negotiate this
over a long time as I have said, it should have happened a lot
sooner. I think there was always an ample basis for them
finding us equivalent. But the difference was this versus how
they looked at Singapore or Korea or India or the many other
places where they have granted equivalence, they looked at this
as an opportunity to say we really need to try to harmonize
regulation of CCPs between the U.S. and Europe so that we don't
have a situation where there is a possibility for arbitrage by
businesses, movement and so forth. And that is an admirable
objective.
Mr. David Scott of Georgia. Right.
Mr. Massad. I think we all want to try to harmonize
regulations. So they really wanted to use the process to do
that.
Mr. David Scott of Georgia. Okay.
Mr. Massad. And we have succeeded at that. We have reached
an agreement, and we will go forward and get it done on time.
Mr. David Scott of Georgia. All right. Very quickly, we
just passed an omnibus bill, and I have been very, very
hardworking to try to make sure you all had the proper funding
that you needed. But in this omnibus bill you were flat funded.
Tell us where you are with that. Do you have enough funds,
moving forward, and how damaging was the flat funding?
Mr. Massad. Well, it is very challenging, it is very
difficult. Our costs increase over time, so we must manage
hiring, but this agency, to my mind, just does not have the
budget commensurate with its responsibilities, given that those
responsibilities were dramatically expanded, really
dramatically expanded by the Dodd-Frank Act. We were given
responsibility for this entire new market, the over-the-counter
swaps market, and plus, as many of you know, the traditional
markets we have overseen, the futures and options markets, have
grown tremendously, not just in size, but in complexity, in the
number of products. So that is our challenge. I would be happy
to discuss it in more detail.
Mr. David Scott of Georgia. All right, thank you. I----
The Chairman. The gentleman's time has expired.
Mr. David Scott of Georgia. I apologize for going over
time, and I appreciate your courtesy, sir.
The Chairman. The reason I allowed it is I thought you were
just following up with the first question, not going into an
entirely new line. So, David, I had to cut you off a little bit
there.
Mr. David Scott of Georgia. My apologies, sir.
The Chairman. Mr. King, for 5 minutes.
Mr. King. Thank you, Mr. Chairman. Chairman Massad, I am
just picking up where Mr. Lucas left off. I believe you said
that it was an incorrect practice, the accounting on some of
the leases that are the subject of the news and our dialogue
here this morning. And since I am not one of the CPAs here, was
it an incorrect accounting practicing that you were referring
to?
Mr. Massad. Yes. It was both an incorrect practice in terms
of the amount that should have been obligated under Federal
law, as well as, therefore, an incorrect accounting.
Mr. King. Okay.
Mr. Massad. That is how I understand. I am not an
accountant either, but that is how I understand it both--
incorrect as to Federal appropriations law and accounting.
Mr. King. The Federal appropriations law, can you state--
stipulate what law that might be?
Mr. Massad. The specific law, I am sorry----
Mr. King. Antideficiency Act?
Mr. Massad. Well, certainly, the Antideficiency Act is
involved, but there may be a separate law as to what amounts
you obligate. But the issue was, as I say, the fact that when
we entered a multiyear lease, the view was, just given the
nature of our authority, we had the authority to enter into
multiyear leases, and obviously, by entering into a multiyear
lease you can get a better deal for the taxpayer. It is pretty
hard if you have to enter into a 1 year lease for 600 people,
you are not going to get a very good deal. But when we entered
into a multiyear lease, we should have obligated the full
amount, those full 10 years of payments.
Mr. King. And regardless of the accounting practice
involved there, I will just go back to the Antideficiency Act,
which prohibits the obligation of funds that have not yet been
appropriated.
Mr. Massad. Right.
Mr. King. And that is what we are really talking about,
isn't it?
Mr. Massad. Well, had we tried to obligate the full amount,
yes, we would not have had the budget if we were going to both
have an office and employees, as I understand it. We couldn't
have had both.
Mr. King. Right. And so I just wanted to get to that. And I
don't know that I want to put you in this position, but I am
trying to determine this, and that is that, how pervasive is
this practice in the broader Federal Government? And I know
that is not a question you can legitimately answer here this
morning, but I am asking you this question this way so that I
can continue on with that, and that is, I will just say, as I
interpret what I have heard here today, however inadvertent it
might have been, it is, at least temporarily, a violation of
the Antideficiency Act, which you will correct working with the
GAO and the OMB.
Is that a fair statement?
Mr. Massad. Yes. And I couldn't comment on how pervasive it
is, Congressman.
Mr. King. Right.
Mr. Massad. I don't know the answer to that.
Mr. King. But you would concede that it appears that this
is a violation of the Antideficiency Act?
Mr. Massad. Well, I will leave it to the lawyers on that,
but my understanding is that it likely is.
Mr. King. And that is mine. And I take it to this point for
that purpose that we have a broader responsibility in
government to go back to the Antideficiency Act and apply it in
places beyond just in your operation, but in the entire
government. And so I take the opportunity to make that point
here in this hearing, and I am glad this hearing is taking
place for that reason.
And so moving on from that topic, and I thank you for that
response, I go back to Dodd-Frank, the--making sure that all
the rules work and your customer protection requirements that
came out after Dodd-Frank. You are relatively satisfied with
what you have been able to put together in fine-tuning the
rules?
Mr. Massad. Well, we are still working on it. There is
still some fine-tuning we need to do. One of the things we are
going to be taking up this spring is our rules on trading of
swaps. There are a number of things that we would like to look
at there that need to be changed. There are other issues too.
With this whole structure, it is very challenging to implement
a whole new regulatory framework for an industry that is
already a global industry that hasn't been regulated.
Mr. King. Let me pose this question another way. If Dodd-
Frank had never been passed and signed into law, or if it were
repealed in its entirety, what would you speculate would be the
implications in your area of influence?
Mr. Massad. Well, Congressman, the steps we have taken
through Dodd-Frank are excellent steps, and they reflect,
obviously, the commitments of all the leaders of all the G20
nations to take the very same steps. We saw in the crisis how
excessive risk could develop in this market, and it contributed
to the intensity of the crisis.
Now, there are a lot of derivatives that we all know are
used by commercial businesses to hedge routine risk that are
very important, and we want to make sure they can continue to
do that. But we needed to take steps to put in a framework for
this market where we are clearing standardized swaps, because
that helps monitor and mitigate the risk, where we are having
oversight of the major players in this market, and requiring
them to do things like have capital and margin and so forth. So
all those steps are good. It is just, it will take time to get
it exactly right.
Mr. King. I thank you. And that summarizes just the
international conformity as one of the things that you
mentioned.
And, Mr. Chairman, I appreciate the hearing, and I yield
back the balance of my time.
The Chairman. The gentleman's time----
Mr. King. Thank you.
Mr. Massad. Thank you.
The Chairman.--has expired.
Ms. Plaskett, for 5 minutes.
Ms. Plaskett. Yes, thank you, Mr. Chairman. Thank you so
much for being here this morning.
Mr. Massad. Thank you.
Ms. Plaskett. I wanted to just quickly ask you, and then
move on to something else, a question about the leasing. When
there was some discussion earlier about that, do you think
that--I know that the SEC had the same problem several years
ago, is this something that maybe if you had--GSA had taken
over, or using GSA, would be more helpful to you so that you
could move to them the administrative and the day-to-day
operations?
Mr. Massad. Well, thank you for the question,
Congresswoman. It is a very good question. And, obviously,
there is a difference if an agency goes through GSA. In our
case, when I took office--all I can speak of is really my
experience since taking office, and when I took office we
already had leases in place in all the offices. None of them
actually are due to expire for another, I don't know, 5 years.
So when I took office it was even longer than that. However, I
did sit down--shortly after I took office, I sat down with the
head of the GSA because I recognized that we did have some
excess space, and I wondered if they could help us with that.
And we actually talked about whether it would even make sense
for GSA to take over our leasing. And he pointed out, well,
since you don't have anything coming up, you don't have any
renewals----
Ms. Plaskett. Yes.
Mr. Massad.--you would have to pay us--I would have to pay
GSA seven percent really for not much benefit.
Ms. Plaskett. Exactly.
It is only if they would be negotiating the contract to
leases that you could see any benefit to that?
Mr. Massad. I think so, but we didn't explore it fully, but
he was very helpful anyway in----
Ms. Plaskett. Okay.
Mr. Massad. Yes.
Ms. Plaskett. Thank you. And then my other question, moving
to a completely different topic, would be in terms of market
reform, and particularly in Asia. Where do you see them going
in terms of market reform and the competitiveness that we have
with the Asian market and commodities? And between Europe, our
own market, and Asia, where do you find us and the others in
that spectrum?
Mr. Massad. Yes. Excellent question, Congresswoman. And I
have been very focused on what is going on in Asia. Last year I
made a trip out there. I have tried to develop good
relationships with the regulators throughout that part of the
world, China, Japan, Hong Kong, Singapore in particular, Korea,
and we are continuing to do that. They agreed to the G20 reform
principles. They are implementing those. Clearing the--clearing
requirements have taken effect in many jurisdictions. Japan is
probably furthest along in terms of implementing some of the
other reforms. The U.S. really was able to implement these
reforms much faster than anywhere else in the world, so other
jurisdictions are still coming along.
The markets in Asia are not quite as developed as ours.
Certainly, maybe leaving out Japan, but when you look at China,
it is a huge market for derivatives, particularly commodities,
but it is not as developed in terms of being a market where
businesses hedge risk. It is much--it is a much more retail-
speculative market. But we have been trying to build relations
there and work with them on harmonizing reforms.
So I guess the short answer is there is a lot of work to do
here, but there is a willingness over there to work together,
and I hope that we can do that so that they do implement
similar reforms and we can harmonize.
Ms. Plaskett. So the lack of harmonization, does that
create a competitive edge for them or for us, or is it
something that you don't see affecting----
Mr. Massad. I don't think it is today because, again, I
don't think there is a serious issue there, and there are other
differences in the markets. But, over time we do want to make
sure that we achieve some basic regulatory harmonization on a
lot of these key points. And there is a lot of good work going
on to do that. The margin rule on uncleared swaps is a great
example where there are international standards that a lot of
countries participated in drafting. And I worked very hard to
make sure our rule was consistent with those so that we do
further this process of international harmonization.
Ms. Plaskett. I have run out of time, but at some point it
would be great if the Chairman could have you explain why this
margin you feel is so important in the uncleared swaps area.
Thank you.
The Chairman. The gentlelady yields back. Thank you.
Mr. Scott, for 5 minutes.
Mr. Austin Scott of Georgia. Thank you. Thank you, Mr.
Chairman.
Mr. Massad, good to see you again.
Mr. Massad. Good to see you.
Mr. Austin Scott of Georgia. I want you to know I share the
Chairman's opinion that until there is a reauthorization, that
there should be no increase in funding for the agency. That
would be for any agency, quite honestly, if it hasn't been
reauthorized, I don't think we should increase funding, but
certainly, holds for yours as well.
I can't help but wonder, as a small business owner who is
licensed with a series 7, who somebody on someone's staff that
worked for someone like you thought that I should document
every lunch that I had with a client, I should document where
we ate, what the address of that lunch was, and what I spent
with that client at lunch. And I can't help but wonder what
would happen if a government regulator came through the doors
of my business and asked for the records of where I had lunch,
how much my fine would be if I wasn't able to produce each and
every document for them.
I heard what you said, but the fact of the matter is a
legal liability was not properly documented, and your records
are incomplete. And as a private business owner, I know what
would happen to me if I hadn't done those same things. I trust
you when you say it wasn't intentional, but what would happen
to an entity regulated by your agency if that entity was not
recording data in a timely fashion, or retaining complete
document sets? What would the fine be? What would the penalty
be?
Mr. Massad. Congressman, I guess I would say it this way.
Our compliance efforts are directed, and I say this to the
staff all the time, are directed toward bringing people into
compliance. They are not directed at playing gotcha games. And
the same is true for our--with respect to our enforcement. We
are not focused on small businesses who don't document a lunch.
I am not even aware that our requirements require that. We are
focused on Ponzi schemes and precious metal scams and spoofing
and people who are deliberately manipulating the markets.
Mr. Austin Scott of Georgia. And I absolutely support you
being in those things. In order for our markets to work, you
have to have access and you have to have integrity. The problem
is when you draft the rules and regulations in such a manner
that it encompasses everybody out there, then it becomes a
problem and it puts the smaller people out of business----
Mr. Massad. And I----
Mr. Austin Scott of Georgia. Let me make one final
statement on that if I could. With regard to Dodd-Frank, the
idea that you would put my local community bank, where there is
absolutely no systemic risk to the U.S. economy if that bank
failed, under the same rules and regulations that you would put
a multibillion dollar institution, is a perfect example of the
flaw of the original legislation. And my fear is that if the
agent--that the agencies are going to push forward and continue
to put the little person under the same rules and regulations
as the big person, and, therefore, putting the little guy out
of business.
Mr. Massad. Well, Congressman, I share your concern. It is
certainly not my desire, and we have taken a lot of steps to
make sure we are not doing that. As I noted, recently we took
an action to make sure that small banks and community
development financial institutions who weren't specifically
addressed in the statute could continue to engage in their very
limited derivatives business the way they had been, and not be
subject to a----
Mr. Austin Scott of Georgia. And I recognize that most of
them are not engaged actively, but as a whole, the rules and
regulations that were drafted for the multibillion dollar
institutions have come down on our local community bank, and it
has caused problems, especially for our farmers and others like
myself who go to the community bank because that is who we
choose to go to and want to go to.
I have 30 seconds left. I would suggest to you that, with
regard to the rules of automated trading, which is not
something that--I will admit, I don't understand it completely,
but I do believe that that is intellectual property that
belongs to people, and I do believe that they have a right to
privacy. If you have probable cause of wrongdoing, then I
absolutely think that you should go get a warrant to get access
to that intellectual property. But I can't see the government
being trusted to safeguard and house peoples' intellectual
property.
Mr. Massad. And, Congressman, we are not asking you to do
that. We are not seeking that power. We are not asking them to
give us what they call their source code. All we are asking is
that they preserve it, that is all we are trying to do, so that
if there is a problem and we do need to go get it, using the
proper procedures, we can. There has been some misunderstanding
about what our intention was, and we are certainly open to
making sure that the final rule works that way.
If I can just take a minute more on the record-keeping. We
did just revise a very important record-keeping rule in
response to the concerns of a lot of commercial businesses that
said they felt it was subject to an interpretation such that
they did have to keep records that they didn't feel were
necessary, and we changed it. That was called rule 1.35. And
the same on the small banks, we have taken steps, such as the
swap dealer rule doesn't require registration by them. They are
exempted from a lot of other requirements. So I will----
Mr. Austin Scott of Georgia. I appreciate it.
Mr. Massad.--continue to work with you on this.
Mr. Austin Scott of Georgia. My time has expired. But there
is a difference in the standard for private business owners----
Mr. Massad. Okay.
Mr. Austin Scott of Georgia.--and the government. And the
people who make the rules should abide by the rules.
The Chairman. The gentleman's time has expired.
Ms. Adams, for 5 minutes.
Ms. Adams. Thank you, Mr. Chairman. And thank you, Chairman
Massad, for your testimony and for the work that you and the
other Commissioners have done in developing and finalizing and
implementing many important rulemaking guidance in the wake of
Dodd-Frank, particularly as it relates to harmonizing
rulemaking on central clearing.
Let me ask, with today's announcement, and it is sort of a
follow up of an agreement on equivalence for clearinghouses
with the European Union, can you give a breakdown of how this
agreement may impact the Asian markets and their ability to
follow suit in working with us on harmonizing rulemaking.
Specifically, what impact today's rulemaking will have on the
Asian markets to catch up.
Mr. Massad. That is an excellent question, Congresswoman. A
lot of the people in Asia have been waiting for Europe and the
U.S. to reach an agreement so that then they could see what
that agreement is, and maybe then think about their own rules.
And we have a separate process going on to look at just that.
We have a separate process that involves not just the U.S. and
Europe, but regulators from around the world looking at
clearinghouse regulation issues, and whether we should try to
make the standards more granular, whether we can meet to
harmonize in certain areas, and the Asians are involved in
that.
So the main effect of this is everybody will say finally,
it is finally done. Now we know, and now let's move forward
through the international work stream to look at some of these
issues further, and to try to achieve further harmonization
globally.
Ms. Adams. Thank you. There have been heightened levels of
discussions around the issue of stress tests for
clearinghouses. Do you think that stress tests for
clearinghouses are necessary to mitigate the concern for the
concentration of risk on a clearinghouse?
Mr. Massad. That is an excellent question. Yes, I think it
is very important. And again, this international group that I
referred to, that is one of the things they are looking at: can
we develop some standards for stress tests of clearinghouses.
Clearinghouses are different. They clear different products,
they have different structures, so there is not a one-size-
fits-all, but it is important to try to develop some standards.
We are co-chairing this international effort to look at things
like stress tests and margin methodologies, and recovery plans
and capital or skin in the game. So there will be a report
coming out by about the middle of the year on this.
Ms. Adams. Okay. One last question. One major area of
concern identified in the 2015 OFR report is the risk of a
contagion from a failing swap dealer or major swap participant.
So how is the CFTC monitoring or working to relieve that risk
or the concern for that contagion risk?
Mr. Massad. Well, that is where this rule on margin for
uncleared swaps is so important. What we have done is we have
said you have to clear on these central clearinghouses, or
CCPs, the standardized products, but then you have still have a
lot of products that aren't going to be cleared, and shouldn't
be cleared. We shouldn't be trying to move everything into the
clearinghouses because that will just potentially put too much
stress on the clearinghouses. So you are still going to have
large institutions engaging in swaps bilaterally. And the
margin rule says you have to hold some margin for that,
collateral, in case the other guy defaults. We have a rule in
place now. We made it consistent with what the bank regulators
are doing in this area, because they have responsibility too
for this issue. We made it consistent with what international
regulators are doing. So that is why I refer to this as a very
important sort of piece of the overall architecture here.
Ms. Adams. Thank you very much.
Mr. Chairman, I yield back.
The Chairman. The gentlelady yields back.
Mr. Crawford, 5 minutes.
Mr. Crawford. Thank you, Mr. Chairman.
In your testimony you said one of the reasons swap data is
disorganized is because the Commission ``expected the industry
to develop standardized terms. Unfortunately, that didn't
happen.'' However, in the 2012 swap data reporting rule it
states unequivocally the Commission has determined that the
final rule will delegate the Chief Information Officer the
authority to determine the format, data standards, and
electronic transmission standards and procedures acceptable to
the Commission. Other than the December technical standards
release, what specific steps has the CIO undertaken to provide
appropriate data standards to market participants?
Mr. Massad. Excellent question, Congressman. We have
recently come out with some proposals suggesting some
standardized ways of reporting. It covers about 120 fields. And
prior to that time, we had a lot of meetings with industry to
sort of develop these ideas. Let me just say that there was an
article about what I said--quoted or had a headline that said I
was blaming the industry. I am not blaming the industry. This
is a challenging problem, and it is just something that is just
going to take time and we have to work together. I want to work
with industry to figure out what the best way is of doing this.
I wasn't around when the agency first drafted the rules.
They didn't really have the data then, and they put out rules
thinking that the industry might come up with standardized
measures. The industry has done that in a lot of areas. I used
to be a lawyer in private practice. I worked with a whole
industry group that came up with a whole set of definitions
originally in the swap area. But the issues today, they are
things like if you have a swap that pertains to a physical
commodity even, like corn or whatever, there are maybe ten
different ways basic fields are getting reported. It is a
simple problem on the one hand, but when you are talking about
millions of swaps it becomes a very complicated problem.
Mr. Crawford. Well----
Mr. Massad. That is what we are trying to standardize.
Mr. Crawford. Got you. Let's talk about the data problem
that you highlighted in your testimony. It has been known for
years and it has been highlighted repeatedly before this
Committee by multiple witnesses, including then-Commissioner
Scott O'Malia. So providing regulators with a complete picture
of the market was one of the most important goals of the G20,
and it has been loudly trumpeted as one of Dodd-Frank's biggest
safeguards against another financial catastrophe. Given the
importance of data reporting, why hasn't this issue been a
bigger priority at the Commission?
Mr. Massad. Congressman, excellent question. It has been a
big priority. It is just all a question of resources and how
quickly can you do all these things. All these things are big
priorities. Fine-tuning the rules so that they don't burden
commercial end-users is a big priority, making sure we are
addressing cybersecurity is a big priority, all these things
are, but, let me just say that while there are issues in
getting the data to a better state, we are benefiting very,
very significantly from this data already. The study on the de
minimis rule is a great example of that.
Mr. Crawford. Let me----
Mr. Massad. Yes.
Mr. Crawford. Let me ask you this: probably more important
than who is to blame for the swap data problem is what is the
magnitude of the problem. So my question to you is if we had a
financial crisis today, what could the CFTC tell us tomorrow
morning about total counterparty exposure for major U.S.
financial institutions?
Mr. Massad. We can tell you a lot. I receive reports on who
are the largest participants in the swap market, what that
exposure consists of in terms of whether it is cleared or
uncleared, what asset class it is in. We are increasingly able
to look at interconnectedness, so we are able to do a lot, but
there is a lot more we should do. We are trying, for example,
to build out our surveillance system which is very
sophisticated when it comes to the futures market, because we
built that out over time. We look at concentration risk,
liquidity risk, credit risk, market risk, for all these
participants. We are trying now to incorporate their swap
activity into that, even if it is uncleared. So there is a lot
we can tell you today, but there is still a lot of work we need
to do.
Mr. Crawford. You don't have any concerns that the global
regulators don't have a full picture of the markets as the G20
intended?
Mr. Massad. Well, the words full picture, we are getting
there. There are always ways you can improve the picture. It is
a very, very--and the way I liken this to, it is like a big
infrastructure project. It wasn't just write a rule, flip a
switch, and suddenly you will know exactly what this market
looks like. You have to build this out. And I remind our staff,
we have to build it out over time so let's think about the
milestones we are trying to achieve. We can't build the Rolls
Royce tomorrow.
Mr. Crawford. What is the timeline for building that out?
Mr. Massad. It is a gradual process. I am very focused on
what can we accomplish this year. And, as I say, we have put
out a specification on harmonizing 120 fields, we have put out
rule changes on reporting of cleared swaps, we are working on
right now, this very minute, we are chairing a data
harmonization effort that brings together international
regulators as well as industry participants. We have about--I
spoke to them yesterday, it is a 3 day meeting where we are
talking about a lot of these issues, and we are bringing--
again, bringing together regulators and businesses from around
the world to do this.
Mr. Crawford. Thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired.
Ms. Graham, for 5 minutes.
Ms. Graham. Thank you, Mr. Chairman.
I represent north Florida, very rural, lot of agriculture,
so I am so proud to sit on this Committee. I just finished a
tour, the first annual north Florida farm tour of all 14
counties in my district, and talked with farmers and folks
about the challenges they are facing, which are, unfortunately,
quite a lot. And low commodity prices came up regularly. So
within the markets that you regulate, can you give some counsel
advice as to what steps farmers in my district and across the
country can be taking to address and to deal with low commodity
prices?
Thank you.
Mr. Massad. Well the derivatives markets, in my mind,
really exists to help farmers, ranchers, commercial businesses
to hedge price risk. Prices are going to be volatile. We don't
control them. They are going to go up and they are going to go
down. And we are experiencing that in a lot of commodity areas,
obviously, not just agriculture. We are seeing, obviously, that
in the whole energy complex with what has happened with oil.
And so our job is to make sure these markets are accessible.
The questions that were asked by the Chairman and others on
clearing members and whether people have access to clearing
members is critical. Our job is to make sure they can execute
efficiently. Our job is to make sure that clearinghouses
function well and don't pose risks. So those are the things we
are trying to do to facilitate their ability to use these
markets. But obviously, the price volatility and the declines,
we are talking about global forces here that affect these
things.
Ms. Graham. Well, thank you. Is there nothing in addition
that you could point to that I could help some of the farmers
in my district with some guidance in the future as they deal
with these low commodity prices?
Mr. Massad. Well, again, I can't influence prices. I don't
influence prices. But I guess what I would say to them is, to
the extent that they are trying to hedge their risk through the
commodity derivatives markets, I am always happy to hear about
their experience and whether they are facing challenges there,
and whether there are things we can do to make it easier for
them to hedge risk, if that is what they want to do. Some
businesses don't want to do that. And I am not counseling
people to do it or not do it, I am just saying if that is what
they are choosing to do, and they are running into issues, we
are always happy to hear about that.
Ms. Graham. Okay, I really appreciate it. Thank you.
And I yield back my time, Mr. Chairman.
The Chairman. The gentlelady yields back.
Mr. Newhouse, 5 minutes.
Mr. Newhouse. Thank you, Mr. Chairman. And thank you for
being with us this morning, Chairman Massad.
My very first CODEL was to Chicago, and included the CFTC
visit, and I appreciate the hospitality there.
I just wanted to ask a couple of questions. In December of
last year, the CFTC finalized rules on margins for non-cleared
cross-border swaps. And we appreciate that this rule provides a
greater flexibility for swap participants than what the
potential alternative rules could have, but it seems to
conflict heavily with guidance that was issued back in 2013. In
the areas where there is conflict between the rule and the
guidance, how would you encourage market participants to
respond, and what have you done, what steps have you taken to
help clarify any confusion that this creates?
Mr. Massad. Sure. Thank you, Congressman, for the question.
I believe you are referring to the cross-border application of
the margin rule, of the rule on margin for uncleared swaps. We
have not yet finalized that part of the rule. What we finalized
in December was what we call the base rule. We are doing a
separate rulemaking on the cross-border application of it, and
we do hope to take that part up for finalization very soon.
The issue there was that the guidance that you are
referring to was general guidance put out with respect to
cross-border issues across the board, not just margin but a lot
of issues. When it came to the margin rule, we looked at being
consistent with the guidance, but that would have made us
inconsistent with what the bank regulators were doing. And so
we have been thinking a lot about, well, how do we proceed
here. The guidance stated very clearly that it was just general
guidance, and the Commission, when it did particular rules,
might do something different. And so we put out a proposal that
said to everybody, please comment. We said, well, we could
comply with the guidance. It would look like this if we did. We
could be consistent with what the bank regulators are doing in
this very same issue, because they have responsibilities too,
and it would look like this. Or we could do something in
between the two.
So we invited comment on that. Invited industry comments.
We received a lot of comments. We are going through that now,
and we will make a determination as to what to do. To me, that
is the best way forward, to try to be as transparent as
possible, to say, look, we could make it consistent with the
guidance, we could make it consistent with these other rules
that are coming down the pike, we could do something in
between, or maybe there is another alternative. So that is what
we are looking at.
Mr. Newhouse. Yes. I appreciate that. As you know, the
report accompanying the Consolidated Appropriations Act of 2016
directs the CFTC to issue a rule setting the swap dealer de
minimis level at $8 billion or higher, no later than 60 days
after passage. Mr. Chairman, does the CFTC intend to comply
with Congress' instructions?
Mr. Massad. Well, we certainly take those instructions
seriously, and we are keeping them in mind. What we are doing
is, I felt we needed to have a study of this rule to understand
what the implications were because there wasn't really data
available before. So that is why we have been doing the study
and getting input. We have gotten input from people in Congress
on this. And we are looking at all that input, and we will come
out with a final report and that will enable the Commission to
then decide what to do.
Mr. Newhouse. Do you anticipate an interim final rule?
Mr. Massad. We haven't made a decision on that. I want to
talk to my fellow Commissioners and see what their thoughts are
on what action, if any, we should take.
Mr. Newhouse. Yes. I appreciate that. Again, welcome. Thank
you for being here.
Mr. Massad. Thank you.
Mr. Newhouse. I yield back, Mr. Chairman.
The Chairman. The gentleman yields back.
Mr. Kelly, 5 minutes.
Mr. Kelly. Thank you, Mr. Chairman. And thank you,
Chairman, for being here.
Going back and following up with Representative Scott's
question, despite receiving $35 million increase in your Fiscal
Year 2015 appropriation, relative to 2014, you repeatedly asked
for increased funding for the agency. Your Fiscal Year 2016
appropriation was kept at the same level as 2015. While we all
would like to have more resources or more funds at our
disposal, that is often not possible, especially in the world
that we live in, and we must tighten our belts instead,
shifting resources to meet the most pressing need,
prioritizing, determining what needs the most funds. Could you
please tell me what steps the CFTC has undertaken to tighten
its belt, looking to see where funds may not be put to their
best use and reallocating those funds to the priorities that
you choose as the Chairman?
Mr. Massad. Absolutely, Congressman. And I agree with you
that we do have to prioritize. One of the key things we have
done is we have worked with the National Futures Association,
the NFA, which is our main self-regulatory organization, to see
what further activities they could engage in that aren't
necessarily the core things that we need to focus our resources
on. And so, for example, we have asked them to take on greater
responsibility with respect to examinations of swap dealers,
and the permanent registration process for swap dealers. And
there are other areas where we are asking them to step up and
do more.
We are trying to prioritize our own issues and it is very
hard because so many of these things I would like to be acting
on concurrently, whether it is the data issues or the end-user
concerns. But we are having to do that. We have had to delay
doing certain improvements to our IT systems, which I would
rather not delay, but we have had to postpone some of those.
We are always focused on trying to prioritize and make the
best use of the resources we have, but I do believe that given
the scope of this agency's responsibilities, that it is
critical to increase that budget.
Mr. Kelly. And on another line, as you are aware in the
current form, regulation automated training, reg AT, will
permit the CFTC and the DOJ access without a subpoena to highly
proprietary source codes by market participants. Many market
participants have expressed concern with the CFTC's ability to
safeguard this highly valuable and sensitive information. How
does or how will the CFTC guarantee that any outside
contractors would safeguard these irreplaceable trade secrets,
and how would the agency know if any proprietary source code
was, in fact, stolen?
Mr. Massad. Excellent question, Congressman. So what we are
talking about is what we call the source code for how an
algorithmic trading strategy would work. And if you have a
situation in the market where an algorithm runs amok, and we
have seen those, whether it was Knight Trading or some other
things, you need to be able to go back in and reconstruct what
happened, and the only way you can reconstruct what happened is
if that source code has been preserved, meaning even if they
change the algorithm, they kept what it used to say. That is
what we are after. We are just asking them to keep it, to
preserve it. We are not asking them to give it to us. And we
very much recognize the confidentiality concerns. We get all
sorts of confidential information from market participants, and
keeping it confidential is one of our utmost obligations.
And with respect to source code, we are happy to work with
industry participants on this to make sure there are procedures
in place that are sufficient to safeguard that confidentiality.
That is the last thing I want to see happen. The strength of
our markets rests on their integrity and their transparency,
and part of that is making sure that we preserve the
confidentiality of any kind of information that we need to get
access to in our compliance and enforcement capacities.
Mr. Kelly. Thank you, Chairman, for being here today. And,
Mr. Chairman, I yield back the balance of my time.
The Chairman. The gentleman yields back.
Mr. Allen, 5 minutes.
Mr. Allen. Yes, sir. And thank you, Chairman Conaway--
excuse me. Thank you, Mr. Chairman. And again, I firmly believe
that all agencies and programs in the Federal Government need
to be authorized and then appropriated, not the other way
around.
As you know, House Republicans have made many efforts to
reauthorize the CFTC with some significant and much-needed
reforms. I want to encourage, as you probably already heard
here today, our Senate colleagues to act on this legislation.
And I agree with Chairman Conaway, we need to finish our work
authorizing agencies and programs before we spend more taxpayer
dollars.
Obviously, as in all of our districts, the commodity price
situation is of great concern. We have decreasing acreage being
used, for example, for cotton, which is under the WTO rule, and
now in the farm bill there is no protection. And so is there
any link to that as far as the world market price for cotton? I
mean the reduction--I mean it looks like that--well, obviously,
we have some issues with China on cotton, but if there is this
glut in the supply chain, and because we now have a situation
where our folks are just taking a big hit. As the Chairman
said, the farm economy is down 55 percent, and it is going to
hit us particularly hard in Georgia, agriculture is our number
one industry. So is there any connection with that as far as
some of our counterparts taking advantage of us because we are
considered a developed nation, and they are considered
undeveloped nations, according to the lawsuit. So what is your
thinking on that?
Mr. Massad. Well, I would hope not, Congressman. I guess in
terms of what our jurisdiction is, it is to make sure that,
say, a futures contract pertaining to cotton isn't susceptible
to manipulation. It is not up to us to police trade agreements,
as you know. But the concerns you have raised bear on the
contract design, and how is that contract designed in terms of
what are the production points or the delivery points that are
taken into account in calculating a futures price, and is that
working well. And that is something that the clearing agencies
review from time to time as market participants raise concerns
about contract design, and we get involved as well. I know also
one of the clearinghouses is trying to introduce a new world
cotton contract.
So I am happy to work with your staff if there are
particular concerns on that contract design, we are happy to
look into those.
Mr. Allen. Okay, great. Well, certainly, we are just going
to continue to reduce the numbers of acres that we plant
cotton. And folks can just eat so many peanuts. And, of course,
the farmers were fairly smart to go to peanuts and corn, and
some other things, but we still want to be a player in cotton,
so we are going to have to figure that out.
Also, and I am not sure if you have been asked to do this,
but as far as a list of your current service contracts, could
your Commission provide that to----
Mr. Massad. I am sorry, our current what contracts?
Mr. Allen. The current service contracts that your agency
enters into as far as third party vendors. Could you get us a
list of those service contracts?
Mr. Massad. Sure, I would be happy to check on that,
Congressman.
[The information referred to is located on p. 39.]
Mr. Allen. And then also as far as those service contracts,
has your staff examined to ensure that all obligations are
appropriately accounted for under the recording statutes?
Mr. Massad. Certainly. Yes, we do.
Mr. Allen. Okay.
Mr. Massad. We take that very seriously. We take our
obligations to comply very seriously.
Mr. Allen. Okay. All right, good. Well, Mr. Chairman, I
yield back my time. And thank you very much for your testimony.
The Chairman. The gentleman yields back.
Mr. Davis, 5 minutes.
Mr. Davis. Thank you, Mr. Chairman. And, Mr. Chairman,
thanks for being here.
Sometimes I need a translator too to understand my
colleagues from Georgia also. So, Rick, great questions.
Mr. Allen. Thank you.
Mr. Davis. I wanted to bring up an issue that was brought
to my attention. Representatives of the futures trading
industry recently took the extreme step of filing an amicus
brief in Federal court. The brief asserts that they do not
understand the CFTC's position on attempted manipulation, and
they believe the position on attempted manipulation, if
accepted by the court, will cause major problems in the
markets. They claim that the CFTC is attempting to recast 3
decades of subtle law, and that the CFTC, if successful, it
would upset settled trading expectations and practices. Are you
aware of this brief?
Mr. Massad. I am aware of it, sir.
Mr. Davis. Are you concerned about the potential negative
impact on legitimate trading when you change settled law
through enforcement actions?
Mr. Massad. Well, Congressman, I would prefer not to get
into the specifics of a particular case.
Mr. Davis. Well, this is more about changing settled law.
Mr. Massad. Yes.
Mr. Davis. That is what I am asking----
Mr. Massad. Yes.
Mr. Davis.--about, not----
Mr. Massad. Yes. I----
Mr. Davis.--a specific case.
Mr. Massad. Yes. I don't think--we are not trying to change
settled law. I think our view of the law is--I can state it
pretty basically. You can't toy with prices. Prices should be
set by supply and demand.
Mr. Davis. But would you----
Mr. Massad. You----
Mr. Davis. Would you--go ahead.
Mr. Massad. Sorry. Please.
Mr. Davis. Would you agree on the importance that market
participants have a clear understanding of what constitutes
that attempted manipulation in the futures markets?
Mr. Massad. Yes, I would, and I would agree that the way we
do that in this country is Congress passes a law and the courts
interpret it, and that is what is going on here. But, I don't
think we are trying to rewrite a lot of history here, a lot of
court cases. I think it is before the court--or these things go
before the courts and they will get resolved that way. But I
can tell you that as far as the agency's own position, it has
not changed.
Mr. Davis. Okay. Well, I just want to make sure we have
learned some hard lessons about the importance of markets and
their impact on our economy, and shouldn't Congress or at
least, collaborative, thoughtful agency rulemaking, with proper
notice to the marketplace, have a role in something like this
that could cause, as they stated in their letter, widespread
problems for our markets.
So thank you for your responses. Before I run out of time,
I want to say I am glad to see you have an agreement with
Europe on the equivalence, because it is very vital for our
U.S. markets. The process for getting to this point seems a
little flawed. From my perspective, it seems like Europe tried
everything they could to make this a competitive instead of a
regulatory issue. And, in fact, this seems like it almost
became a trade issue with Europe trying to keep the U.S. out of
its markets.
What can be done to prevent European regulators from acting
this way in future negotiations?
Mr. Massad. Well, I guess I would say it this way,
Congressman----
Mr. Davis. And I know you dealt with this issue earlier,
but I wasn't here. I apologize.
Mr. Massad. Both Commissioner Hill and I inherited a
situation. We were both committed to trying to resolve it in
good faith and as quickly as we could. The fact that we now
have resolved it provides a good basis for future cooperation.
We should be focused on, as you put it, the regulatory
objective. We have a lot of other work streams going on that
are seeking to do that, that Europe and the U.S. and other
regulators are involved in. And so our challenge is now let's
take this forward, let's focus on those work streams, and let's
try not to let these things get derailed.
Mr. Davis. Well, Mr. Chairman, thank you for your time. And
in the days of multiple hearings, I will see you later.
Mr. Massad. Okay, thank you.
Mr. Davis. I yield back.
The Chairman. The gentleman yields back.
Mr. DesJarlais, for 5 minutes.
Mr. DesJarlais. Thank you, Mr. Chairman.
Mr. Chairman, a recent article in Bloomberg noted that oil
markets had reached a new record for the highest number of open
positions in WT oil contracts, with speculations opening almost
\1/2\ million contracts through February 2.
Given this unprecedented level of speculative activity in
the oil markets, how many dollars per barrel do you think it is
adding to the current price of oil?
Mr. Massad. Congressman, I don't speculate on prices, or I
don't comment on prices. I guess what I would say is that we
have seen a lot of volatility obviously in the oil market and
the energy complex overall. It is obviously the product of a
lot of very, very big forces of supply and demand. But our job
is to engage in surveillance to make sure there aren't people
violating the law, engaging in improper behavior, trying to
manipulate prices, and we will do that to the best that we can
with the resources that we have.
Mr. DesJarlais. Thank you. Would you consider, or would you
classify this as excessive speculation?
Mr. Massad. No, not at this time. To my knowledge, we are
again witnessing an oil market which has been affected by some
very large forces of supply and demand. The shale revolution
has caused tremendous change in production, and particularly
production in this country. We have seen changes from abroad in
both what OPEC is doing and in Iran. So there are lot of very
big factors affecting the oil market and affecting prices here.
Mr. DesJarlais. Okay, Mr. Chairman, if a record number of
open contracts doesn't constitute excessive speculation, then
what exactly is excessive speculation?
Mr. Massad. Well, Congress didn't define it in the law. It
is up to us to do our best, and our task in that regard is to
come up with a positions limits rule, as Congress has directed
us to, that is supposed to be designed to prevent excessive
speculation. And that is what we are trying to do. In our
surveillance efforts, we are focused on whether people are
manipulating or attempting to manipulate price. So that is what
we will continue to do there.
Mr. DesJarlais. Okay, you may have answered this somewhat,
but let me try again. How do we know exactly what activity the
Commission is trying to prevent with this proposed position
limits rule, which has no definition or test for excessive
speculation?
Mr. Massad. Congressman, we are trying to carry out the
directive that Congress gave us, which was to implement
position limits, to limit excessive speculation, while at the
same time allowing for bona fide hedging. We have had position
limits in agricultural commodities for many, many years, and
most people would say they have worked well. And Congress made
the decision to expand that, and that is what we are trying to
do. We are going about that by looking at a number of things
and listening to market participants of all types as to how we
should design this rule. We are working with the exchanges on
how we should design this rule. They, of course, have had
position limits in place for a number of other commodities,
even when it wasn't a Federal limit, for years and years also.
And when I talk to most participants, they agree that we should
have position limits. The questions go to exactly where they
should be set, and making sure that they allow for bona fide
hedging. And those are the things we are focused on.
Mr. DesJarlais. All right, thank you for your answers.
I yield back.
The Chairman. Before the gentleman yields back, if he would
yield to----
Mr. DesJarlais. I will yield the balance of my time, Mr.
Chairman.
The Chairman. Mr. Chairman, that law you cite, Dodd-Frank,
uses the phrase as appropriate with respect to position limits.
We did not, in fact, demand that you do that. Wouldn't it be
better to let the markets themselves set those limits as
opposed to the Commission trying to make that happen, because
we didn't tell you that you had to do it?
Mr. Massad. Well, Congressman, I guess it has been our
interpretation that we are supposed to do a rule here. As to
exactly what the limits are, is the question we are working on
and working to try to get right. And we will continue to do
that. I have said many times over it is more important to get
this right and we should take the time we need to get it right.
The Chairman. Okay. I appreciate that.
Mr. Thompson, 5 minutes.
Mr. Thompson. Thank you, Mr. Chairman. Chairman, welcome.
Thanks for being here.
Chairman, I have a couple of questions. I have read that in
response to increases in capital requirements under the Basel
III supplementary leverage ratio, large derivative dealers in
the United States and Europe are exploring spinning off their
cleared swaps desks. Do you have concerns with that
possibility, and what would be the effect on the swaps market
and the cost of hedging risk?
Mr. Massad. That is an excellent question, Congressman, and
we are watching that. There have been some articles on that
recently. We don't have enough information yet to fully
evaluate it, but it is something we are certainly going to keep
our eyes on and talk to market participants about.
The issue though, you have noted properly the underlying
issue here, or at least one of them, which we are also looking
at and I have spoken about publicly, which is the effect of
capital requirements on, for example, the clearing member
community. And we talked about that a little bit earlier, but I
am concerned about whether we are properly balancing the
objectives of strong capital requirements, which I support, but
also promoting central clearing. And I have been concerned that
the way some of these regulations were written could create a
disincentive to clear, which would not be consistent with the
objective of promoting central clearing.
Mr. Thompson. Yes. Thank you. Just to follow up on that. I
know that, in response to a question by former Chairman Lucas
regarding the SOR, you said that I am very concerned, as you
said now, that the SOR would have a significant negative impact
on the clearing, and you went on to say that you spoke recently
with Comptroller Curry and Chairman Gruenberg at the FDIC, and
as well as the Fed, about this issue, and that you all agree
that our staffs would get together and discuss it further. Did
Comptroller Curry and Chairman Gruenberg, Chair Yellen, or any
of their staff ever take the time to sit down with you or your
staff to discuss the issue further, and if so, how did that go?
Mr. Massad. Yes. We have discussed it. They have a
different view right now. They are--well, I don't want to speak
for them individually. I will just say that there are different
views here. There is still discussion going on. They have the
objective of making sure there are strong capital requirements,
and they believe the leverage ratio should not be, as they put
it, risk-based, and, therefore, shouldn't take into account,
for example, the margin posted at the clearinghouse. I am
concerned that we really should be thinking about that margin.
I mean there is $250 billion of margin held at our primary
clearinghouses for all these cleared trades. That is a lot of
margin to ignore. I know there is an international work going
on looking at this.
So we will continue to engage, but there are differences of
opinion.
Mr. Thompson. Now, I have seen recently where the Basel
Committee is considering reviewing its position on the issue.
What does that mean for the U.S. SOR rules, and if the Basel
Committee fixes this issue, will the issue be settled there, or
will our U.S. regulators have to act?
Mr. Massad. That is a good question. My understanding, and
I am not a member of the Basel Committee and I don't know
exactly what they are going to do, I have heard rumors, is they
could do something but our regulators would still have to act.
Obviously, they have the jurisdiction here. It is helpful to
have this kind of discussion about it. I will continue to be
available and to raise it. We are continuing to talk to
clearing members about it. It is helpful if the clearing member
industry comes up with more data to show what effects they
think it is having. Thank you.
Mr. Thompson. Well, thank you, Chairman.
And, Mr. Chairman, I yield back.
The Chairman. The gentleman yields back.
Mr. Chairman, thank you for being here today. I have a
couple of other questions. Your job, and a lot of other
regulators, all these things that have been done under the
guise of Dodd-Frank and a lot of money spent in that regard.
Stepping back from it and trying to see does it actually work
and are we going to be able to give a heads-up in terms of some
sort of monster systemic risk that would replicate the damage
done in 2008. A lot of press reporting about the stresses on
European banks, and you talked earlier about interconnectedness
and being able to do the things that you are supposed to do. I
mean I got the enforcement part on a one-on-one basis, that is
really important to maintain the integrity that is going on,
but overall FSOC efforts and everything that is in place. Could
you walk us through your role at FSOC? Do you prepare written
reports and other data to put into that scheme, whatever it is,
not that those would be public, obviously, because of the
sensitivity of it, but I am just trying to see, we have a lot
invested in this whole effort collectively, the folks on the
compliance side as well as your team and the taxpayers. Are we
in a position to give the world a heads-up if a coming wreck is
imminent, based on everything we have done?
Mr. Massad. Well, excellent question, Mr. Chairman. I think
we are in a much better position today. That is not to say we
will predict everything. Right? It is always challenging
because if there is another problem, it may come from a
direction that we haven't anticipated. But, bringing all the
regulators together through FSOC is an enormously important
action that we have taken, because it does allow all of us to
share ideas and information and perspectives, and at least
minimize the risk that, because of the various functional
groupings of regulators of even silos, that we kind of miss
something that falls between jurisdictions. So think it helps
enormously in that respect.
The Chairman. So your contribution to that, would it be
written, do you just go there and talk, or does your team
actually put together reports that feed into the system, and if
so, how often does that happen?
Mr. Massad. It varies, Mr. Chairman. We do some of both.
Yesterday we were making a presentation with others on
clearinghouse issues to some of the other staff. My staff made
a presentation, when we had the October 15 volatility in the
treasury markets, because we had data on the futures market,
which doesn't really exist on the cash treasuries market, we
were able to put together a presentation for the full FSOC for
the principles when we made that presentation. We are going to
make a presentation on our Regulation AT. So sometimes we do
formal presentations, sometimes we comment on other
presentations that are made, sometimes it is just a discussion.
We comment on drafts of reports. So it is all of those things.
The Chairman. All right. Well, given the nature of that and
the sensitivity of the data, would you agree to a confidential
briefing for the Ranking Member and I, our Members, to get a
better sense of what that looks like?
Mr. Massad. Certainly.
The Chairman. Okay. A couple of this and thats. Office of
the Chief Economist is relatively small now versus what it
might have been in the past. And the role that you see the
Chief Economist playing in the overall surveillance and trying
to look and get these kind of forward-looking heads-ups that it
is a part of that job, how do you see that office going?
Mr. Massad. It is extremely important. In fact, in our
budget, percentage-wise in terms of staff, that is the highest
increase. I am trying to increase that office by 50 percent.
The Chairman. All right.
Mr. Massad. And that is not the only economist we have
though. We also have economists in other divisions. But it is
extremely important to expand our economists.
The Chairman. The lease issue that we have talked about,
the excess space, I know that you wouldn't necessarily get
benefit to your budget if you were able to sublease that or to
try to minimize the impact. What are the restrictions for being
able to do that, and can you see a public relations plus on
your side in that those resources would come back to the
taxpayer, in effect, if you did that by being able to minimize
the impact that excess office space is having? What are the
technical restrictions for allowing you to take a businesslike
approach? I mean if you were in business for yourself, you
would have done something, rather than paying----
Mr. Massad. Absolutely.
The Chairman.--out millions of dollars.
Mr. Massad. Mr. Chairman, I would be happy to sublease it
and turn the money over to the U.S. Treasury if I could do
that. The restriction as I understand it is this, we can only
sublease under the law if it is to someone who is, and I am not
going to get the phrase right, I will ask our lawyers so I get
the exact phrase, but they have to be furthering our regulatory
mission----
The Chairman. Okay. So this----
Mr. Massad.--and objectives.
The Chairman. This is something that you would be willing
to work with us on if we can figure out how to address that----
Mr. Massad. Certainly.
The Chairman.--because this can't be the only agency that
has excess space, if those are----
Mr. Massad. Mr. Chairman, to give you an example, we
collected $2.8 billion in enforcement fines. All that goes back
to the Treasury. So, we are not----
The Chairman. Well, that--there is a--I got that, but I--
you know what I am saying? You are asking for more resources
and yet you have this albatross hanging around your neck of
excess office space. It is easy for others to say, well, you
are not using it. Anyway, let's work together to try to figure
out how we can loosen that up so that you can, in fact, get a
better arrangement for the taxpayers.
Ms. Kuster, did you have questions?
Ms. Kuster. Just a very quick one----
The Chairman. All right, you are recognized----
Ms. Kuster.--if I could have 1 minute?
The Chairman.--for 5 minutes.
Ms. Kuster. Thank you very much. And I apologize for the
delay. I have been in another committee. But welcome----
Mr. Massad. Thank you.
Ms. Kuster.--to the Agriculture Committee.
I understand that there was an announcement this morning
about the EU and the CFTC reaching an agreement on equivalence,
which is great news. My question is, how can we ensure that
these efforts will not inhibit our ability to safeguard the
markets? So in other words, it is great news that we have
reached an agreement, is that going to be sufficient and do you
have any concerns, going forward, about safeguarding markets?
Mr. Massad. Yes, Congresswoman. Thank you for the question.
It is very, very consistent with those efforts. In fact, it
helps, it furthers those efforts. One of the things that was
very important to me in this agreement was making sure we
recognize that these very large clearinghouses that operate
cross-border, that we need to work together with regulators in
other parts of the world on the oversight, on the supervision.
We shouldn't just be saying, well, if it is on your soil, you
take care of it and we don't have to worry. And so that is why
we want to continue to get information about what is going on
at a European clearinghouse. Now, we have a very excellent
relationship with the Bank of England and with ESMA and with
the German regulators, and we will continue to work with them.
But in this day and age, having regulators cooperate in the
oversight of these very, very large clearinghouses is a very
high priority.
Ms. Kuster. Great, thank you. And hopefully you will report
back, and I am----
Mr. Massad. Yes.
Ms. Kuster.--sure Mr. Conaway will be all over it. Thank
you very much. Thank you.
The Chairman. Mr. Chairman, again, thank you for being here
today. I want to get it on the record one more time how
responsive your team was with respect to the leases issue and
our inquiries, and thank you for that. From time to time, there
are agencies out there that aren't quite as forthcoming, and
particularly on the issue of where you are trying to clean up
somebody else's mess. But I appreciate that.
With the economies in the world going bad, our own economy
only grew \7/10\ of a percent last year. We have ag income down
55 percent in over 2 years. The worst drop since 1919, 1920,
1921 timeframe. There are stresses in the mix, and I am hoping
that this overall effort we have had, some of it agreed with,
some of it we didn't agree with, will pay some dividends in
terms of trying to let FSOC do its job and trying to see what
might be in front of us, and try to rein some of those things
that are actually causing it, as opposed to just the overall
impact that economies have on growing and shrinking. So again,
thank you, Chairman, for being here.
Under the rules of the Committee, the record of today's
hearing will remain open for 10 calendar days to receive
additional material and supplementary written responses from
the witness to any question posed by a Member.
This hearing of the Committee on Agriculture is adjourned.
[Whereupon, at 11:37 a.m., the Committee was adjourned.]
[Material submitted for inclusion in the record follows:]

Supplementary Material Submitted by Hon. Timothy G. Massad, Chairman, Commodity Futures Trading Commission

Mr. Allen. . . .
Also, and I am not sure if you have been asked to do this, but as far as a list of your current service contracts, could your Commission provide that to----
Mr. Massad. I am sorry, our current what contracts?
Mr. Allen. The current service contracts that your agency enters into as far as third party vendors. Could you get us a list of those service contracts?
Mr. Massad. Sure, I would be happy to check on that, Congressman.

CFTC Service Contracts as of March 2, 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expiration Date
Contractor Purpose Amount Obligated to Date (if all options Contract Type
Effective Date exercised)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Lockheed Martin Management eLaw Support $4,264,702.13 3/4/2013 3/31/2016 Labor
Systems
Verizon Combined Services--telecomm services $4,745,868.87 9/30/2009 9/30/2017 Telephone Service
PhaseOne Consulting Group IT Security Support--20 Critical Controls $2,425,358.18 6/29/2015 6/28/2020 Labor
PhaseOne Consulting Group Enterprise Architecture Support $275,129.00 6/29/2015 6/28/2018 Labor
Coastal International Security guard services $397,794.00 8/1/2015 1/31/2017 Labor
Security Inc.
Kearney & Company Fiscal Manual and Financial Controls $2,396,689.15 9/29/2014 3/28/2017 Labor
Washington Metropolitan SmartBenefits Program $1,564,176.80 9/6/2011 9/5/2016 Services
Area Transit (WMATA)
Verizon Managed Trusted Internet Protocol Services $2,413,889.65 9/30/2011 9/30/2017 Telephone Service
(MTIPS)
Employee Services, Inc. Employee Assistance Program $105,643.50 11/6/2012 11/5/2016 Labor
FPMI Solutions Inc. Personnel security program support $504,692.87 11/29/2011 11/28/2016 Labor
Merlin International Hosting and License for Monster (HR Hiring $992,353.92 6/15/2012 6/14/2017 Software/Hosting
Solution)
Northrop Grumman Enterprise service Bus/BizTalk/Service $2,378,927.51 9/24/2012 9/23/2017 Labor
Oriented Architecture support
Northrop Grumman Data analytics support $3,295,282.44 11/23/2012 11/22/2017 Labor
Northrop Grumman SAS platform support $1,867,396.31 3/4/2013 3/3/2018 Labor
Northrop Grumman Portal development and maintenance support $3,743,656.89 3/11/2013 3/10/2018 Labor
Northrop Grumman Data Standards Support $3,216,220.76 3/25/2013 3/24/2018 Labor
Northrop Grumman Ongoing Development, Maintenance and Support $2,608,508.98 6/1/2015 5/31/2019 Labor
for Data Engineering and Processing (DEAP)
Northrop Grumman Market data operations support $420,396.30 9/15/2015 9/14/2020 Labor
Northrop Grumman Swaps data harmonization support $962,552.69 9/14/2015 9/13/2020 Labor
IBM IT systems operations and maintenance $8,769,981.68 9/26/2012 9/26/2017 Labor
MAR Inc. Sharepoint maintenance and support $3,661,675.46 9/24/2012 9/23/2017 Labor
MAR Inc. Surveillance systems support $4,103,810.80 9/25/2012 9/24/2017 Labor
Deloitte Consulting Enterprise solutions development support $1,132,010.00 6/12/2013 6/11/2018 Labor
The DesignPond Full service design support for CFTC's AFR, $361,088.28 9/25/2012 3/31/2017 Labor
Summary and President's Budget
The DesignPond Full service design support for CFTC's $216,700.38 9/25/2012 6/30/2017 Labor
Annual Performance Report
FM Talent Business management support $945,569.13 7/9/2012 7/8/2017 Labor
Techlaw Solutions Relativity software maintenance $120,000.00 10/19/2015 10/18/2016 Software Maintenance
Unisys EMC onsite support $952,743.23 9/13/2012 9/12/2017 Labor
Deloitte Consulting Maintenance of Business Information Systems $1,103,097.06 9/27/2012 9/26/2017 Labor
Genscape Access to Genscape databases $200,000.00 9/24/2012 9/23/2016 Subscription Service
SEC Market watch room/back-up site $25,898.00 9/1/2015 9/30/2016 Services
Iron Mountain Offsite paper records storage $161,707.97 6/1/2013 5/31/2018 Services
Markit Group Ltd. Data subscription service $198,000.00 9/5/2013 10/9/2017 Subscription Service
FPMI Solutions Inc. Human Resources operations and $728,158.88 1/22/2013 1/21/2018 Labor
administrative support
FPMI Solutions Inc. Training coordination $135,744.00 9/1/2014 8/31/2019 Labor
FPMI Solutions Inc. Competency Study $389,952.00 9/17/2014 9/16/2016 Labor
FPMI Solutions Inc. Payroll and benefit support $170,649.60 9/28/2014 9/27/2019 Labor
FPMI Solutions Inc. eLearning Specialist $123,705.60 9/12/2014 9/11/2018 Labor
Northrop Grumman Enterprise systems architecture support $1,417,985.13 3/25/2013 3/24/2018 Labor
SoftChoice Annual software maintenance for K2 product $233,813.40 3/25/2013 3/24/2018 Software Maintenance
PJ Mechanical HVAC maintenance (NY) $11,286.00 6/27/2013 6/26/2016 Services
Aquilent Recurring support and maintenance of $1,928,000.00 6/1/2013 5/31/2018 Labor
CFTC.gov
Aquilent CFTC.gov site content analysis and design $316,214.18 6/22/2015 4/1/2016 Labor
Metrostar CFTCNet maintenance and support $907,096.41 5/29/2013 5/31/2018 Labor
Metrostar CFTC Whistleblower Program and OCE Websites $283,275.90 4/20/2015 10/19/2016 Labor
LexisNexis Computer assisted legal research and $818,553.00 11/1/2013 10/31/2018 Subscription Service
retrieval services
T-Mobile CFTC-Wide wireless services and related $409,550.78 11/19/2013 11/18/2018 Wireless Telecom
equipment--initial task order Service
AT&T CFTC-Wide wireless services and related $612,371.36 11/27/2013 11/26/2018 Wireless Telecom
equipment--initial task order Service
AT&T WiFi installation and service at CFTC HQ $72,490.40 9/9/2014 9/8/2018 WiFi Service
Verizon CFTC-Wide wireless services and related $1,062,974.77 11/26/2013 11/25/2018 Wireless Telecom
equipment--initial task order Service
Nexidia Software $94,729.02 3/26/2014 3/25/2019 Software Maintenance
CCH Access to CCH publications and data $203,725.53 9/1/2014 8/31/2019 Subscription Service
GMG Management Consulting Travel information center services $392,768.04 5/1/2014 4/30/2019 Labor
Spartan Business and Document management, project management and $1,273,389.68 9/1/2014 8/31/2019 Labor
Technology analytical support for CFTC Financial
documents
Practicing Law Institute Legal education services relevant to $86,900.00 1/16/2014 1/15/2019 Services
financial markets
Corporate Executive Board CEB Corporate Leadership Council $91,960.00 6/26/2014 6/25/2017 Membership
BarnAllen Technologies Electronic imaging services $70,000.00 9/29/2014 9/28/2017 Services
Aquilent Web-hosting of external portal $356,724.70 9/26/2014 9/25/2019 Services
Aquilent CFTC.gov cloud hosting $80,000.00 3/11/2015 3/10/2020 Services
Anser COOP support services $544,748.80 9/26/2014 3/25/2018 Labor
DecisionQuest Jury trial consultation services $1,400,000.00 9/24/2014 9/23/2019 Labor
Porter Novelli Integrated marketing support $4,799,450.29 9/18/2014 3/17/2016 Labor
MAIC Acquisition Support Services $248,198.40 9/26/2014 9/25/2019 Labor
Northrop Grumman Analysis of Swap Dealer Risk $1,069,198.80 9/30/2014 9/29/2019 Labor
Northrop Grumman Analytical support $1,110,685.68 9/29/2014 9/28/2019 Labor
Zebra Economics Expert Witness $90,000.00 9/22/2014 9/21/2017 Labor
CMRA Expert witness $573,000.00 9/29/2014 9/28/2016 Labor
IBM Analytical support $438,182.40 9/29/2014 9/28/2019 Labor
Advanced AV Audio visual maintenance $389,880.00 10/1/2014 9/1/2019 Equip. Maintenance
Entrust Inc. Entrust identity guard $13,277.08 10/1/2014 9/1/2017 Software Maintenance
Entrust Inc. Entrust certificate management services $8,264.07 11/18/2014 11/17/2017 Software Maintenance
First Federal Records storage $9,512.48 12/1/2014 11/30/2019 Services
West Publishing Corporation Investigative Research Tool $57,935.28 4/27/2015 4/26/2020 Software
Berkeley Research Group Expert witness $740,000.00 12/31/2014 9/30/2016 Labor
Shaw, Bransford & Roth Outside legal counsel for labor issues $50,000.00 2/6/2015 2/5/2020 Labor
Recovery Point Systems Data center $1,264,614.00 9/1/2015 8/31/2025 Services
Imtech Corporation Activu license renewal $66,544.49 6/21/2015 6/20/2017 Software Maintenance
ThunderCat VCE Maintenance $12,992.97 3/1/2015 2/29/2017 Equip. Maintenance
ThunderCat EMC Maintenance $1,233,018.38 3/26/2015 3/25/2017 Equip. Maintenance
Southwest Distribution Newspaper delivery $22,191.05 4/1/2015 3/31/2016 Services
Ensys Expert Witness $140,000.00 4/22/2015 10/21/2017 Labor
Advanced Computer Concepts Maintenance on Symantec NetBackup $59,135.14 9/1/2015 8/31/2016 Software Maintenance
The Network Inc. Hotline program $2,660.00 3/30/2015 3/29/2016 Services
Trivantis Hosting of CourseMill $24,900.00 6/5/2015 6/4/2016 Subscription Service
Smiths Detection Inc. Maintenance of x-ray unit $4,125.80 4/20/2015 4/19/2016 Equip. Maintenance
Smiths Detection Inc. Maintenance of SABRE handheld devices $9,075.00 4/2/2015 4/1/2016 Equip. Maintenance
Bates White Expert witness $595,400.00 8/20/2015 7/31/2017 Labor
Corporate Executive Board CEB Government Finance Leadership Council $75,118.00 4/30/2015 4/26/2016 Membership
PATCech Oxygen Forensic license renewal $3,447.00 8/4/2015 4/21/2018 Software Maintenance
August Schell Enterprise Symantec Protection Enterprise Edition 4.0 $35,255.00 5/13/2015 5/12/2016 Software Maintenance
Licenses
Murray, Martin M. Expert economist $92,050.40 5/28/2015 5/27/2016 Labor
Boardwalk BoardwalkTech BCP Enterprise Edition license $9,000.00 5/11/2015 5/10/2016 Software Maintenance
renewal
Portfolio Media Subscription to Law360 $16,320.00 5/11/2015 5/10/2016 Subscription Service
Advance Trading Inc. Subscription Services $12,000.00 5/1/2015 4/30/2016 Subscription Service
Lockheed Martin Management Systems Financial intake review $270,000.00 8/7/2015 8/6/2020 Labor
and analysis
U.S. Coast Guard Administrative Law Judge services $10,000.00 9/30/2015 6/21/2016 Labor
Dynamic Systems Oracle Financial maintenance renewal $35,861.79 9/23/2015 9/22/2016 Software Maintenance
Sirsidynix Software maintenance for library cataloging $7,175.18 7/1/2015 6/30/2016 Software Maintenance
Analysis Group, Inc. Expert witness $497,373.00 7/10/2015 9/11/2017 Labor
ADI Strategies Business Information System support $543,201.60 8/30/2015 8/29/2020 Labor
Litsavant LTD LitSavant Conformity Engine license $8,100.00 6/25/2015 6/24/2018 Equip. Maintenance
Financial Times Financial Times $18,277.00 8/1/2015 7/31/2016 Subscription Service
Dave Redden New Life Retirement training and counseling services $24,700.74 9/28/2015 9/27/2016 Services
Retirement Benefit
Counseling Service
Inovitech LLC IS-A Task license $170,000.00 7/27/2015 7/26/2016 Software Maintenance
Institutional Investor Subscription to Global Capital $16,740.00 9/1/2015 8/31/2016 Subscription Service
MRF Consulting Human Resources support services $325,000.00 9/25/2015 9/24/2020 Labor
(classification, audits)
CQ-Roll Call Inc. Subscription Services $20,580.00 6/1/2015 5/31/2016 Subscription Service
Gartner Inc. Gartner CIO Essential and Research and $72,690.00 7/1/2015 6/30/2016 Services
Advisory Services
Platts Renew subscription to access Platts/McGraw $139,653.00 7/24/2015 7/23/2016 Subscription Service
Hill data and publications
Teel Technologies Annual license for Cellebrite UFED Ultimate $3,098.99 7/19/2015 7/18/2016 Software Maintenance
Hendrik Bessembinder Expert witness $109,500.00 7/15/2015 1/14/2018 Labor
ABM Janitorial Services-- D.C. carpet cleaning $9,600.00 7/15/2015 7/14/2016 Services
Mid-Atlantic, Inc.
Northrop Grumman Swap Risk Analysis for Chief Economist $323,184.36 9/29/2015 9/28/2020 Labor
U.S. Postal Service, Office Investigative, technical and forensics $27,000.00 7/20/2015 7/19/2016 Labor
of Inspector General services
Blue Tech Inc. StealthWatch Maintenance $56,642.41 9/1/2015 8/31/2016 Software Maintenance
Carahsoft Vmware maintenance $165,839.79 9/20/2015 9/19/2018 Software Maintenance
Emergent Google appliance $47,937.00 8/5/2015 8/4/2017 Equip. Maintenance
Wolters Kluwer Financial TeamMate license renewal $69,495.00 8/1/2015 7/31/2016 Software Maintenance
Services
Lyme Computer Resource Scheduler license renewal $16,927.67 9/1/2015 8/31/2016 Software Maintenance
LexisNexis Renew subscription to LexisNexis Knowledge $9,900.00 7/28/2015 7/27/2020 Subscription Service
Mosaic Database
LexisNexis Renew subscription to LexisNexis Federal $1,932.00 7/28/2015 7/27/2020 Subscription Service
Agency Content Database
Dow Jones & Company eFinancial News subscription $37,500.00 8/18/2015 8/17/2016 Subscription Service
Incisive Media Renew subscription to Risk.net $55,481.00 9/17/2015 9/16/2016 Subscription Service
Claurus Financial Clarus SEFView and ClarusSDRView $21,600.00 8/1/2015 7/31/2016 Software License
Technology
SWN Communications Emergency notification services $27,533.83 8/15/2015 8/14/2016 Software
PAE Labat-Anderson Inc. Capstone E-mail Records Management Planning $212,971.00 9/29/2015 9/28/2016 Labor
Support
Department of Security operational services $88,333.00 8/5/2015 8/4/2016 Services
Transportation--ESC
Deloitte Consulting Pay and performance management reform $222,561.00 9/30/2015 9/29/2016 Labor
PCMG Devcraft software license renewal $30,939.29 3/6/2015 3/5/2016 Software Maintenance
Analysis Group, Inc. Expert Witness $298,410.00 8/7/2015 7/31/2017 Labor
Love and Long LLP Attorney support services $300,000.00 9/23/2015 9/22/2020 Labor
Aon Consulting Retirement subject matter expert $92,277.22 9/30/2015 9/29/2016 Labor
Workforce Resources Facilities, logistics and administrative $2,407,161.28 9/4/2015 9/3/2017 Labor
support services
Neopost USA Inc. Maintenance for mail inserter machine $1,561.51 8/24/2015 8/23/2016 Services
Ebsco Subscription Services $165,000.00 8/12/2015 8/11/2016 Subscription Service
A&T Systems MaaS360 License Renewal $45,475.00 8/31/2015 8/30/2017 Software--Maintenanc
e
Actionable Intelligence Comprehensive Financial Investigation $61,053.32 8/20/2015 8/19/2020 Software--Maintenanc
Technologies, Inc. Software (CFIS) e
OPM Leadership for a Democratic Society Program $39,750.00 8/20/2015 8/19/2016 Training
OPM Administration of Leadership360 and Profiler $19,000.00 9/3/2015 9/2/2016 Services
Assessment
American Systems PBX Upgrade and annual maintenance $1,531,317.07 9/30/2015 9/29/2019 Equip./Soft.
Maintenance
Catapult Technology Core infrastructure operations and $2,704,696.20 9/1/2015 8/31/2025 Labor
maintenance and support services
STG Inc. Configuration Management and IT Security $315,000.00 9/1/2015 8/31/2025 Labor
Support
Teel Technologies PC-3000 Annual Maintenance $17,678.00 9/29/2015 9/28/2016 Software--Maintenanc
e
Knowledge Information DLP Software Solution $205,173.52 9/29/2015 9/28/2020 Software--Maintenanc
Solutions e
Grant Thornton Expert Witness $50,000.00 9/23/2015 9/22/2016 Labor
The Brattle Group Expert Witness $325,000.00 9/14/2015 9/30/2016 Labor
Berkeley Research Group Expert Witness $100,000.00 9/24/2015 9/23/2016 Labor
Blue Tech Inc. Altova MissionKit Annual Maintenance $7,074.28 8/26/2015 8/25/2016 Software--Maintenanc
e
Ricoh USA Comprehensive maintenance for CFTC's $119,380.00 9/1/2015 8/31/2016 Equip. Maintenance
multifunction printers
Design Mechanical HVAC maintenance for KC office $2,264.00 9/1/2015 8/31/2016 Equip. Maintenance
Sanametrix Audit strategic planning model $74,925.00 9/29/2015 9/28/2020 Labor
X1 Discovery Social discovery software and maintenance $7,497.00 9/23/2015 9/22/2020 Software Maintenance
Vound Colorado Intella Pro License $7,000.00 9/21/2015 9/20/2016 Software
AMTIS Executive Coaching Services $273,896.35 9/28/2015 9/27/2020 Services
Capitol News Politico Pro News Access $24,975.00 9/30/2015 9/29/2016 Subscription Service
CNN Interactive Group SmartCheck Advertising Support/Placement $100,000.00 9/17/2015 5/16/2016 Advertising
Interceptive Interactive SmartCheck Advertising Support/ $149,000.00 9/17/2015 5/16/2016 Advertising
Placement
Forbes SmartCheck Advertising Support/Placement $125,000.00 9/17/2015 5/31/2016 Advertising
Investing Media SmartCheck Advertising Support/Placement $100,000.00 9/25/2015 5/31/2016 Advertising
Specific Media SmartCheck Advertising Support/Placement $149,000.00 9/29/2015 5/31/2016 Advertising
AOL Advertising SmartCheck Advertising Support/Placement $149,000.00 9/30/2015 5/31/2016 Advertising
USDA-NFC Implement and annual maintenance of EmpowHR $352,789.00 9/21/2015 9/20/2016 Software
System
Interactive Data Data Service $52,800.00 9/26/2015 9/25/2016 Subscription Service
Kiplinger Washington SmartCheck Advertising Support/Placement $80,000.00 9/25/2015 5/31/2016 Advertising
Editors
Gumgum SmartCheck Advertising Support/Placement $149,000.00 9/24/2015 5/31/2016 Advertising
Atlantic Monthly Group SmartCheck Advertising Support/Placement $149,000.00 9/30/2015 5/16/2016 Advertising
Investopedia SmartCheck Advertising Support/Placement $149,000.00 9/29/2015 5/31/2016 Advertising
Dow Jones & Company SmartCheck Advertising Support/Placement $75,000.00 9/28/2015 3/14/2016 Advertising
Regulatory Compliance Online training services $24,900.00 9/30/2015 9/29/2016 Subscription Service
Association
BMC Upgrade Footprints Software $68,512.00 9/30/2015 4/8/2016 Software
Empresa Noronha Expert Witness $97,928.00 9/29/2015 5/31/2016 Labor
Government [Publishing] [Publishing] in the Federal Register $186,250.00 10/1/2015 9/30/2016 [Publishing]
Office
Government [Publishing] CFTC Participation in the GPO spa 960 $23,254.34 10/1/2015 9/30/2016 [Publishing]
Office program
Alvarez & Associates Quantum Scalar tape library annual $73,474.82 10/14/2015 10/13/2016 Software Maintenance
maintenance
COMED Electricity services for Chicago Regional $15,474.00 10/1/2015 9/30/2016 Utilities
Office
BCSP V D.C. Portfolio Reit Misc. services for the D.C. office $30,000.00 10/1/2015 9/30/2016 Services
LLC
National Business Center Interagency Agreement for Drug and Alcohol $700.00 10/1/2015 9/30/2016 Services
testing
OPM Background investigations for FTE staff and $84,603.00 10/1/2015 9/30/2016 Services
contractors
Dynamex Courier services for Chicago Regional Office $3,000.00 10/1/2015 9/30/2016 Services
Tishman Speyer Properties Misc. services for the Chicago Regional $12,334.80 10/1/2015 9/30/2016 Services
Office
United Parcel Service Priority mail delivery services for all $45,000.00 10/1/2015 9/30/2016 Services
office locations
Tishman Speyer Properties Janitorial services for Chicago Regional $23,000.00 10/1/2015 9/30/2016 Services
Office
ABM Janitorial Services-- Janitorial services for D.C. Regional Office $17,683.00 11/1/2015 10/31/2016 Services
Mid-Atlantic, Inc.
Remco Business Systems Maintenance of electronic filing system $1,690.00 10/25/2015 10/24/2016 Equip. Maintenance
Linden Resources Business cards for the CFTC Employees $8,133.00 10/29/2015 10/28/2016 Services
General Services MOU for removal of agency excess furniture $9,500.00 10/1/2015 9/30/2016 Services
Administration and equip.
Laz Parking Parking pucks for authorized staff $25,704.00 11/1/2015 10/31/2015 Services
Neopost USA Inc. Postage meter rental and maintenance fees $5,799.00 10/1/2015 9/30/2016 Services
for all office locations
4900 Main LLC Misc. services for the Kansas City Regional $5,000.00 11/1/2015 10/31/2016 Services
Office
Iron Mountain Shredding services for all office locations $4,676.00 11/1/2015 10/31/2016 Services
American Building Janitorial services for New York Office $22,858.44 11/1/2015 10/31/2016 Services
Maintenance
Brown Brothers Harriman & Misc. building services for New York $5,000.00 11/1/2015 10/31/2016 Services
Co. Regional Office
W.E. Bowers HVAC Maintenance for the D.C. office $4,193.00 2/1/2016 11/30/2016 Equip. Maintenance
Air Comfort HVAC Maintenance for the CH office LAN Room $3,262.00 12/1/2015 11/30/2016 Equip. Maintenance
FAA PIV Maintenance $86,014.33 10/1/2015 9/30/2016 Services
Unicom Government Warranty extensions for Dell equipment $11,568.91 10/19/2015 9/28/2016 Equip. Maintenance
SHI International Maintenance renewal for the NightWatchman $4,296.00 10/19/2015 9/30/2016 Software Maintenance
Enterprise
Department of Accounting services for FY16 $343,569.00 10/1/2015 9/30/2016 Services
Transportation--ESC
Department of Hosting services for the Business $228,861.61 10/1/2015 9/30/2016 Services
Transportation--ESC Information System
Department of Treasury Treasury Executive Institute--executive $55,199.14 10/1/2015 9/30/2016 Training
development training
GMC TEK Annual MatLab license renewal $31,993.28 10/1/2015 9/30/2016 Software Maintenance
Alliance Micro Inc. UPS Maintenance for D.C. office $10,044.00 10/20/2015 10/19/2016 Equip. Maintenance
Comcast Cable television service for HQ $23,990.40 10/1/2015 9/30/2016 Services
FCN, Inc. Annual Cisco Maintenance $123,036.54 10/1/2015 9/30/2016 Equip. Maintenance
HHS--Federal Occupational Basic Occupational Health Services $18,990.00 10/1/2015 9/30/2016 Services
Health
Lockheed Martin Management Systems Automated Litigation $1,550,000.00 11/1/2015 4/30/2016 Labor
Support Services
FCN, Inc. LexisNexis LAW $202,000.00 10/1/2015 9/30/2018 Software Maintenance
Interactive Data FutureSource workstations subscription $207,756.00 10/1/2015 9/30/2016 Software Maintenance
Intelligence Community Staff IT Services and maintenance for $35,612.00 10/1/2015 9/30/2016 Equip./Soft.
IntelDirect computer equipment and printers Maintenance
FCN, Inc. LexisNexis Concordance $42,350.00 10/1/2015 9/30/2018 License
LRP Publications CyberFeds subscription renewal $24,768.00 11/1/2015 10/30/2016 Subscription Service
West Publishing Corporation Computer assisted legal research and $178,067.58 11/1/2015 10/31/2016 Subscription Service
retrieval services (Westlaw)
OPM USAjobs.gov portal usage and support $4,214.00 10/1/2015 9/30/2017 Software Maintenance
General Services HSDN/OneNet Maintenance $15,527.00 10/1/2015 9/30/2016 Equip./Soft.
Administration Maintenance
NARA Records storage for CFTC $6,000.00 10/1/2015 9/30/2016 Services
Library Of Congress Fedlink IA $3,550.60 11/10/2015 9/30/2016 Services
Carahsoft Data Domain Tech Refresh $1,499,731.14 12/29/2015 12/28/2018 Equip./Soft.
Maintenance
West Publishing Corporation Renewal of West subscriptions for FY16 $30,199.28 10/1/2015 9/30/2016 Subscription Service
Blue Tech Inc. BES License Upgrade $16,347.00 12/3/2015 12/2/2016 Software Maintenance
Fincad America Software license renewal for Fincad $7,060.00 12/30/2015 1/5/2017 Software Maintenance
General Services SmartCheck publication and documentation $7,000.00 12/15/2015 9/30/2016 Publication support
Administration support
IOSCO 2016 annual IOSCO contribution $50,923.35 1/1/2016 12/31/2016 Membership
RedHawk IT Cisco Iron Port Web Security Appliance $21,530.00 12/30/2015 12/29/2018 Software Maintenance
Software renewal
Department of Justice Paralegal Support $296,125.00 1/1/2016 5/31/2016 Labor
CORT Business Services Rental furniture for New York $3,823.44 10/23/2015 10/22/2016 Services
Reed Elsevier (DBA Library--Legislative History Database $39,276.00 1/1/2016 12/31/2021 Subscription Service
LexisNexis) Maintenance
Duff & Phelps (Feltman) Expert Witness $30,000.00 1/28/2016 1/27/2017 Labor
Berkeley Research Group Expert Witness $10,000.00 2/16/2016 2/15/2017 Labor
PACER Service Center Public Access Service to Obtain Case and $18,000.00 1/1/2016 12/31/2016 Subscription Service
Docket Information
NYSE Access to NY Stock Exchange and American $2,400.00 9/1/2015 8/31/2016 Subscription Service
Stock Exchange data
Blue Tech Inc. ClearSwift MimeSweeper Licenses $7,967.00 12/19/2015 12/18/2016 Software Maintenance
Hendrik Bessembinder Expert Witness $150,000.00 1/8/2016 1/7/2017 Labor
DataFacts Tri-merge credit bureau reports for $6,000.00 1/22/2016 1/21/2017 Services
suitability checks
USDA-NFC Payroll and personnel processing $94,782.00 10/1/2015 9/30/2016 Services
Verizon Wireless Expense Management Solution $27,732.60 2/1/2016 1/31/2020 Services
BBNA Online information services $67,583.15 2/1/2016 1/31/2019 Subscription Service
OPM eOPF $13,511.89 10/1/2015 9/30/2016 Services
BBNA Subscription Services $67,583.15 2/1/2016 1/31/2019 Subscription Service
Thomson Reuters Subscription Services $114,792.40 2/1/2016 1/31/2019 Subscription Service
--------------------------------------------------------------------------------------------------------------------------------------------------------

______

Submitted Questions
Response from Hon. Timothy G. Massad, Chairman, Commodity Futures
Trading Commission
Questions Submitted by Hon. K. Michael Conaway, a Representative in
Congress from Texas
Contracting
Question 1. Are any contracts awarded through any process other
than a full and open competition?
In the event that the Committee does award contracts in a manner
other than a full and open competition, could you please provide the
Committee with a list of those contracts; the financial details of each
contract, including price, duration, service provided, and other
relevant information; the number of contractors employed under the
contracts, if any; and any written justifications associated with them.
Answer. The Commodity Futures Trading Commission (``CFTC'' or ``the
Commission'') awards contracts using full and open competition. In the
limited instances where less than full and open competition is sought
(i.e., sole source or limited competition), the Commission acts
according to the requirements of the Federal Acquisition Regulation
(``FAR'') (48 CFR 1). The FAR allows certain contracts to be awarded
without full and open competition, such as micro-purchases, which are
procurements valued at $3,500 or less, as defined in FAR 2.101, as well
as contracts with values not exceeding $4 million awarded under the
8(a) program, which falls under the auspices of the Small Business
Administration's Business Development Program, authorized by FAR 19.8.
Although the CFTC uses competitive procedures to award the majority
of its contracts with values exceeding the micro-purchase threshold,
there are circumstances where that is not in the Commission's best
interests. For instance, there have been occasions where a procurement
has not yet been completed, but the incumbent contract was expiring.
Because of this, the Commission awarded a short-term sole source
contract or extension to the incumbent contract to bridge the gap to
avoid any lapse in service that could have adverse effects on CFTC's
ability to execute its mission.
Per the Committee's request, attached to this response is a
spreadsheet that contains a list of CFTC's current contracts awarded
using less than full and open competition. The ultimate completion
dates and total values provided assume that CFTC exercises all
available option years in each contract. Additionally, the spreadsheet
includes a ledger explaining the authorities allowing for CFTC to use
less than full and open competition in awarding its contracts.

Attachment
Current Contracts of the Commodity Futures Trading Commission that were Awarded on a Sole Source or Limited Competition Basis--As of March 10, 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Authority for
Less Than Full
Ultimate Completion and Open Total Potential
PIID (Contract Number) Contractor Effective Date Date (if all option Product or Service Competition Value (if all
years are exercised) Description (see Legend option years are
for exercised)
descriptions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CFODT15CO0138 Alliance 07/14/2015 09/30/2016 Maintenance of Mutare FAR 13.106- $9,375.00
Technology Business Continuity 1(b)(1)
Group, LLC System
CFHRB15CO0239 Amtis, Inc. 09/28/2015 09/27/2020 Executive Coaching FAR 6.302-5-- $1,425,367.62
Services 8(a) Program
CFENF14CO0209 Analysis Group, 04/09/2015 05/14/2016 Expert Witness FAR 6.302-3 $456,432.00
Inc.
CFENF15CO0157 Analysis Group, 07/10/2015 09/11/2017 Expert Witness FAR 6.302-3 $497,373.00
Inc.
CFENF15CO0199 Analysis Group, 08/07/2015 07/31/2017 Support- Professional: FAR 6.302-3 $398,410.00
Inc. Expert Witness
CFHRB15DO0096 Aon Consulting, 04/13/2015 04/12/2016 SME in support of the FAR 8.405- $36,748.00
Inc. procurement of a dental 6(a)(1)(i)(B)
plan
CFODT16DO0041 Aspen Systems 10/22/2015 04/21/2016 Automated litigation FAR 8.405- $500,000.00
Corporation- support services 6(a)(1)(i)(B)
Lockheed
CFENF15CO0134 Bates White, 08/20/2015 07/31/2017 Expert Witness FAR 6.302-3 $720,400.00
LLC
CFLIBBBNA0081 02/01/2016 01/31/2019 BBNA online services FAR $210,638.54
16.505(b)(2)(
i)(B)
CFENF15CO0104 Berkeley 02/10/2015 09/29/2016 Expert Witness FAR 6.302-3 $459,400.00
Research Group
LLC
CFENF15CO0081 Berkeley 12/31/2014 09/30/2016 Expert Witness FAR 6.302-3 $740,000.00
Research Group
LLC
CFENF15CO0225 Berkeley 09/24/2015 09/23/2017 Expert Witness FAR 6.302-3 $565,030.00
Research Group
LLC
CFENF16CO0069 Berkeley 02/16/2016 02/15/2017 Expert Witness FAR 13.106- $96,998.00
Research Group 1(b)(1)
LLC
CFENF15CO0176 Bessembinder, 07/15/2015 01/14/2018 Expert Witness FAR 6.302-3 $278,125.00
Hendrik
CFENF16CO0073 Bessembinder, 01/08/2016 01/07/2017 Expert Witness FAR 13.106- $150,000.00
Hendrik 1(b)(1)
CFIT12CO0058 Bloomberg 07/01/2015 06/30/2020 Access to Bloomberg FAR 6.302-1 $1,660,982.90
Finance L.P. Terminals
CFODT15CO0143 Boardwalk Tech 05/11/2015 05/10/2016 Software Maintenance FAR 13.106- $9,000.00
1(b)(1)
CFCON15CO0241 Cable News 09/17/2015 05/16/2016 Online Advertising FAR 13.106- $100,000.00
Network, Inc. 1(b)(1)
CFENF14CO0222 Capital Market 09/29/2014 09/28/2016 Expert Witness FAR 6.302-3 $734,760.00
Risk
Associates,
Inc.
CFODT15CO0240 Capitol News 09/30/2015 09/29/2016 Politico Pro News Access FAR 13.106- $24,975.00
Company, LLC 1(b)(1)
CFLIBCCHO0211 09/01/2014 08/31/2019 Subscription service to FAR 8.405- $465,595.59
Incorporated Commodity Futures Laws 6(a)(1)(i)(B)
Reports and Federal
Litigation Library
CFODT16CO0038 Comcast of the 10/01/2015 09/30/2016 Cable television services FAR 13.106- $23,990.40
District, LLC 1(b)(1)
CFBMP16DO0066 Cort Business 10/23/2015 10/22/2016 Furniture rental--NY FAR 8.405- $3,823.44
Services Regional Office 6(a)(1)(i)(B)
Corporation
CFLIBCQ-Roll Call, 06/01/2015 05/31/2016 Subscription Service FAR 13.106- $20,580.00
Inc. 1(b)(1)
CFLIBDow Jones & 08/18/2015 08/17/2016 eFinancial New FAR 13.106- $37,500.00
Company, Inc. subscription 1(b)(1)
CFLIBDow Jones & 09/24/2015 09/23/2016 Subscription to Wall FAR 13.106- $11,865.00
Company, Inc. Street Journal Digital 1(b)(1)
Group Access
CFENF14CO0174 Decisionquest 9/24/2014 9/23/2019 Jury trial consultation FAR 6.302-3 $7,000,000.00
services
CFENF16CO0068 Duff & Phelps, 01/28/2016 01/27/2017 Expert Witness FAR 13.106- $60,000.00
LLC 1(b)(1)
CFENF15CO0262 Empresa Noronha 01/15/2016 05/31/2016 Expert Witness FAR 13.106- $97,928.00
LLC 1(b)(1)
CFENF15CO0117 ENSYS Energy & 04/22/2015 10/21/2017 Expert Witness FAR 6.302-3 $215,601.00
Systems Inc.
CFODT15CO0142 Entrust, Inc. 06/24/2015 06/23/2019 Entrust Identity Guard FAR 13.106- $22,002.80
Federation Module WIN 1(b)(1)
10.2 license and
maintenance
CFODT15DO0043 Entrust, Inc. 10/15/2015 10/14/2018 Identity Guard CAL for FAR 8.405- $19,915.62
soft tokens 6(a)(1)(i)(B)
CFODT15CO0064 Entrust, Inc. 11/18/2014 11/17/2017 Entrust certificate FAR 13.106- $12,710.09
management services 1(b)(1)
CFOED12CO0156 FM Talent 07/09/2012 07/08/2017 Business management FAR 6.302-5-- $1,432,097.13
Source LLC support for CFTC's 8(a) Program
Office of the Executive
Director
CFCON15CO0245 Forbes Media, 09/17/2015 05/31/2016 Online Advertising FAR 13.106- $125,000.00
LLC 1(b)(1)
CFLIBGenscape, Inc. 09/24/2015 09/23/2017 Access to Genscape FAR 6.302-1 $200,000.00
databases
CFFMB14CO0121 GMG Management 05/01/2014 04/30/2019 Travel information center FAR 6.302-5-- $960,771.20
Consulting services 8(a) Program
Inc.
CFENF14CO0100 Grant Thornton 04/01/2015 05/31/2017 Expert Witness FAR 6.302-3 $1,829,321.00
LLP
CFENF16CO0089 Hendershott, 02/29/2016 02/28/2017 Expert Witness FAR 13.106- $55,600.00
Terrence 1(b)(1)
CFODT15CO0106 Imtech 06/21/2015 06/20/2018 Activu annual license FAR 6.302-1 $207,124.56
Corporation renewal
CFODT15CO0166 Inovitech LLC 07/27/2015 07/26/2020 IS-A Task license FAR 6.302-1 $250,000.00
CFLIBInstitutional 09/02/2015 09/01/2016 Subscription to Global FAR 13.106- $16,740.00
Investor, Inc. Capital 1(b)(1)
CFCON15CO0246 Investing Media 09/17/2015 05/31/2016 Online Advertising FAR 13.106- $100,000.00
Solutions LLC 1(b)(1)
CFENF16CO0079 Iontach 03/03/2016 03/02/2017 Expert Witness FAR 13.106- $25,000.00
1(b)(1)
CFBMP16CO0021 Laz Parking 11/01/2015 10/31/2016 Parking Space FAR 13.106- $25,704.00
Ltd., LLC 1(b)(1)
CFBMP16CO0019 Linden 10/29/2015 10/28/2016 Business cards for the FAR 13.106- $8,133.00
Resources, CFTC Employees 1(b)(1)
Inc.
CFODT15CO0162 Litsavant Ltd. 06/25/2015 06/24/2018 LitSavant Conformity FAR 13.106- $24,300.00
Engine license 1(b)(1)
CFCON15CO0249 Microsoft 09/17/2015 05/31/2016 Online Advertising FAR 13.106- $149,000.00
Online, Inc. 1(b)(1)
CFLIBMLEX U.S. Inc. 09/04/2015 09/04/2016 Newspapers and FAR 13.106- $13,000.00
Periodicals 1(b)(1)
CFDMO15CO0141 Murray, Martin 05/28/2015 05/27/2016 Expert Witness FAR 13.106- $92,050.40
G. 1(b)(1)
CFBMP16CO0022 Neopost USA 10/01/2015 09/30/2016 Postage meter rental and FAR 13.106- $5,799.00
Inc. maintenance fees for all 1(b)(1)
office locations
CFLIBPacer Service 01/01/2016 12/31/2016 Public Access Service to FAR 13.106- $18,000.00
Center Obtain Case and Docket 1(b)(1)
Information
CFLIBPlatts, McGraw 07/24/2015 07/23/2016 Renew subscription to FAR 13.106- $139,653.00
Hill Financial access Platts/McGraw 1(b)(1)
Hill data and
publications
CFCON-14-DO-0186 Porter Novelli 09/18/2014 03/17/2016 OCO integrated marketing FAR 8.405- $4,799,450.29
Public support 6(a)(1)(i)(B)
Services
CFLIBPortfolio 05/11/2015 05/10/2016 Subscription to Law360 FAR 13.106- $16,320.00
Media, Inc. 1(b)(1)
CFODT15CO0137 Public Agency 04/22/2015 04/21/2018 Oxygen Forensic Dongle FAR 13.106- $10,341.00
Training 1(b)(1)
Council, Inc.
CFLIBReed Elsevier, 11/01/2013 10/31/2018 Computer assisted legal FAR 8.405- $1,855,788.00
Inc. research and retrieval 6(a)(1)(i)(B)
services--LexisNexis
CFLIBReed Elsevier, 07/28/2015 07/27/2016 License to access FAR 8.405- $9,900.00
Inc. Knowledge Mosaic 6(a)(1)(i)(B)
LexisNexis Securities
Dashboard
CFODT15DO0171 Reed Elsevier, 08/01/2015 07/31/2020 Annual maintenance of FAR 8.405- $272,954.00
Inc. CaseMap Suite 6(a)(1)(i)(B)
CFLIBReed Elsevier, 01/01/2016 12/31/2020 Library--Legislative FAR 6.302-1 $212,736.00
Inc. History Database
Maintenance
CFODT15CO0156 Sirsi 07/01/2015 06/30/2016 Software maintenance for FAR 13.106- $7,175.18
Corporation library cataloguing 1(b)(1)
CFBMP15CO0127 Smiths 04/02/2015 04/01/2016 Maintenance of SABRE FAR 13.106- $9,075.00
Detection, handheld devices 1(b)(1)
Inc.
CFBMP15DO0126 Smiths 04/20/2015 04/19/2016 Maintenance of x-ray unit FAR 8.405- $4,125.80
Detection, 6(a)(1)(i)(B)
Inc.
CFFMB14CO0141 Spartan 09/01/2014 08/31/2019 Document management, FAR 6.302-5-- $4,000,000.00
Business & project management and 8(a) Program
Technology analytical support for
Services, Inc. CFTC Financial documents
CFODT15CO0151 Sterling 07/01/2015 06/30/2017 Online computer-based FAR 13.106- $14,025.00
Computers security awareness 1(b)(1)
Corporation training
CFODT15DO0195 SWN 08/15/2015 08/14/2016 SWN Communications FAR 8.405- $27,533.83
Communications Service Agreement 6(a)(1)(i)(B)
Incorporated
CFLIBThomson-Reuters 02/10/2016 01/31/2019 Subscription Service FAR 6.302-1 $368,443.00
CFODT14CO0122 Trivantis 06/05/2015 06/04/2016 Hosting of CourseMill FAR 13.106- $24,900.00
Corporation 1(b)(1)
CFCON15CO0248 TubeMogul, Inc. 09/17/2015 05/16/2016 Online Advertising FAR 13.106- $149,000.00
1(b)(1)
CFBMP16DO0011 United Parcel 10/01/2015 09/30/2016 Express and ground FAR 8.405- $45,000.00
Service domestic delivery 6(a)(1)(i)(C)
Incorporated service
(OH) (2075)
CFIT11DO0248 Verizon 09/30/2011 09/29/2017 MTIPS Services FAR 8.405- $3,061,675.33
6(a)(1)(i)(C)
CFCON15CO0247 Viant 09/25/2015 05/16/2016 Online Advertising FAR 13.106- $149,000.00
Technology 1(b)(1)
Inc.
CFOM11CO0199 Washington 09/06/2011 09/05/2016 SmartBenefits Program FAR 6.302-1 $5,000,000.00
Metropolitan
Area Transit
Authority
CFLIBWest Publishing 10/01/2015 09/30/2016 West subscription service FAR 8.405- $30,199.28
Corporation 6(a)(1)(i)(B)
CFLIBWest Publishing 11/01/2015 10/31/2016 Computer assisted legal FAR $3,781,558.68
Corporation research and retrieval 16.505(b)(2)(
services--WestLaw i)(B)
CFODT15CO0185 Wolters Kluwer 08/01/2015 07/31/2016 TeamMate license renewal FAR 13.106- $69,495.00
Financial 1(b)(1)
Services, Inc.
CFBMP15CO0202 Workforce 09/04/2015 09/03/2017 Facilities, logistics and FAR 6.302-5-- $4,000,000.00
Resources, administrative support 8(a) Program
Inc. services
CFENF14CO0219 Zebra 09/21/2016 09/21/2016 Expert Witness FAR 13.106- $105,000.00
Economics, 1(b)(1)
Inc.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Legend of Authorities
--------------------------------------------------------------------------------------------------------------------------------------------------------
FAR Citation Brief Description of the Authority to Use Less Than Full and Open Competition
--------------------------------------------------------------------------------------------------------------------------------------------------------
FAR 6.302-1 FAR 6.302-1, ``Only one responsible source and no other supplies or services will satisfy agency requirements'', allows
agencies to award a contract on a sole source basis when the contractor is considered to be uniquely qualified to perform
the work. (Note, the competition requirements of FAR Part 6 apply to open market procurements exceeding the simplified
acquisition threshold of $150,000. Per FAR 13.000, open market acquisitions that do not exceed the simplified acquisition
threshold are conducted pursuant to the requirements of FAR Part 13.)
FAR 6.302-3 FAR 6.302-3, ``Industrial mobilization; engineering, developmental, or research capability; or expert services'', allows
agencies to award contracts using less than full and open procedures when the agency is acquiring services of ``[a]n expert
to use, in any litigation or dispute (including any reasonably foreseeable litigation or dispute) involving the government
in any trial, hearing, or proceeding before any court, administrative tribunal, or agency, whether or not the expert is
expected to testify.'' This is due to the unique nature of such services and the fact that their disclosure may compromise
pending litigation or other legal action. These contracts are frequently used by the CFTC for expert witness services and
other litigation support.
FAR 6.302-5 FAR 6.302-5, ``Authorized or required by statute'', permits agencies to award contracts on a sole source basis when a
statute allows or requires it. CFTC awards some contracts under the Small Business Development umbrella of SBA's 8(a)
Program. Competition is not required by the FAR for 8(a) Program contracts with values that do not exceed $4 million [see
FAR 19.805-1(a)(2)]. FAR 6.302-5(b)(4) expressly states that sole source contracts under the 8(a) Program may be awarded
without providing for full and open competition.
FAR 13.106-1(b)(1) FAR 13.106-1(b)(1)(i) allows Contracting Officers to solicit from one source if the Contracting Officer determines that the
circumstances of the contract action deem only one source reasonably available (e.g., urgency, exclusive licensing
agreements, brand-name or industrial mobilization). This authority applies to contract actions with values that do not
exceed the simplified acquisition threshold (i.e., $150,000). CFTC uses this authority in situations where only one source
is the only viable option to fulfill CFTC's requirements (e.g., providing cable television service or renewing software
licenses).
FAR 8.405-6(a)(1)(i)(B) CFTC uses the GSA Federal Supply Schedule (``FSS'') contracts often to fulfill its needs. FAR Subpart 8.4 specifies the
& (C) requirements for obtaining competition for orders placed under the GSA FSS program. However, FAR 8.4 does allow agencies to
limit competition under certain circumstances. The two authorities most commonly used by CFTC are FAR 8.405-6(a)(1)(i)(B)
(only one source is capable of providing the supplies or services required at the level of quality required because the
supplies or services are unique or highly specialized) and FAR 8.405-6(a)(1)(i)(C) (the new work is a logical follow-on to
an original competed FSS order).
FAR 16.505(b)(2)(i)(B) In addition to the GSA FSS contracts, CFTC also places orders against other Government-wide Acquisition Contracts (``GWAC'')
such as the Library of Congress's FEDLINK GWAC. FAR 16.505(b)(2)(i)(B) permits agencies to place orders under a GWAC
without providing fair opportunity for all contract holders to compete, in certain circumstances. Specifically, FAR
16.505(b)(2)(i)(B) allows agencies to award on a sole source basis when it has determined that ``[o]nly one awardee is
capable of providing the supplies or services required at the level of quality required because the supplies or services
ordered are unique or highly specialized.''
--------------------------------------------------------------------------------------------------------------------------------------------------------

Question 2. Mr. Chairman, what percentage of the agency's staff are
contractors (i.e., not full time employees (FTE))?
Do any of these contractors perform tasks associated with market
oversight and surveillance, compliance, risk assessment, or
enforcement?
Does the Commission have specific rules governing what tasks are
permissible or not permissible to be contracted out? If so, what are
they?
Answer. Based on the Congressional Spend Plan submitted in January
2016, the Commission estimates it will have 714 civilian full time
equivalents (FTE) and 292 contractor resources during FY 2016. It is
estimated that contractors will be 30% of total agency labor resources
during the fiscal year.
The Commission complies with the Office of Procurement Policy
definitions established in Policy Letter 11-01 titled Performance of
Inherently Governmental and Critical Functions, as well as Federal
Acquisition Regulation (FAR) Subpart 7.5, when hiring contractors to
perform functions at the Commission. All functions that require
performance by a Federal civilian are fulfilled by full-time Federal
civilian employees employed by the Commission. The definition of an
inherently governmental function is provided below for reference:

`` `Inherently governmental function,' as defined in section
5 of the Federal Activities Inventory Reform Act, Public Law
105-270, means a function that is so intimately related to the
public interest as to require performance by Federal Government
employees.

(a) The term includes functions that require either
the exercise of discretion in applying Federal
Government authority or the making of value judgments
in making decisions for the Federal Government,
including judgments relating to monetary transactions
and entitlements. An inherently governmental function
involves, among other things, the interpretation and
execution of the laws of the United States so as--

(1) to bind the United States to take or not
to take some action by contract, policy,
regulation, authorization, order, or otherwise;
(2) to determine, protect, and advance United
States economic, political, territorial,
property, or other interests by military or
diplomatic action, civil or criminal judicial
proceedings, contract management, or otherwise;
(3) to significantly affect the life,
liberty, or property of private persons;
(4) to commission, appoint, direct, or
control officers or employees of the United
States; or
(5) to exert ultimate control over the
acquisition, use, or disposition of the
property, real or personal, tangible or
intangible, of the United States, including the
collection, control, or disbursement of
appropriations and other Federal funds.

(b) The term does not normally include--

(1) gathering information for or providing advice,
opinions, recommendations, or ideas to Federal
Government officials; or
(2) any function that is primarily ministerial and
internal in nature (such as building security, mail
operations, operation of cafeterias, housekeeping,
facilities operations and maintenance, warehouse
operations, motor vehicle fleet management operations,
or other routine electrical or mechanical services).''
Personnel Issues
Question 3. A recent ViewPoint survey of CFTC employees revealed
that its employee satisfaction index (46%) is well below the average
for small agencies (62%). In the ``Best Places to Work'' rankings, the
CFTC ranked 25th out of 28 in the small agencies category. It also
bottomed out in rankings for Effective Leadership and Strategic
Management, where it had the lowest rating among the financial service
agencies.
Could you please explain what steps you're implementing to improve
the leadership and management skills of the Commission's employees with
managerial roles?
Some of the most negatively rated issues involved the ability of
senior leadership to generate ``high levels of motivation and
commitment in the workforce.'' What steps is the Commission taking to
address that problem?
Answer. Immediately following the issuance of the 2014 Employee
ViewPoint Survey results, I began working with division directors to
address concerns raised by the survey.
As part of this effort, each division director developed an action
plan to address issues that were brought to light by the survey. For
example, efforts were made to:

Promote communication across all CFTC divisions and offices;

Continue to assess and improve workflow and project
management processes to encourage greater interaction and
teamwork;

Increase dialogue between CFTC headquarters and regional
offices; and

Create opportunities for staff to participate in detail
assignments.

In addition, we worked to increase agency wide communication and
transparency to ensure that all employees felt connected to the mission
of the agency. This effort included increased use of CFTCNet (agency
intranet) to communicate agency-wide issues and goals, conducting
agency-wide town halls, as well as site visits by the Chairman to the
regional offices, and meetings with the Chairman and individual
divisions or other groupings of employees. It also included formalizing
procedures for employees to make suggestions on agency practices and
management, and increasing recognition of employees for good
performance.
Moving forward, we are building off of these initiatives to provide
additional opportunities for in-house training, more interaction across
Divisions, and between headquarters and regional offices.
The survey results for 2015 showed improvement in many categories.
We saw increases in 61 of the 71 categories. We saw a decline in six
categories and status quo in four of the categories. I feel strongly
that we can improve our EVS scores, and am committed to prioritizing
work on these and other initiatives to accomplish that.
For example, in FY 2016, we are continuing to implement the
following programs to improve leadership and management skills:
Executive Coaching and 360 Assessment Program
In FY 2015, 27% of supervisors participated in a 360 degree
leadership assessment, created and executed against an executive
development plan, and received up to 8 hours of executive coaching. In
FY 2016, 34% of supervisors have participated in a 360 degree
leadership assessment, are in the process of designing an executive
development plan, and will have the opportunity to receive up to 8
hours of executive coaching.
Treasury Executive Institute
The Commission has partnered with the Treasury Executive Institute
(TEI) to provide leadership development training opportunities to all
CT-14s and above. TEI provides training opportunities covering a range
of leadership development topics such as: leading teams, providing
feedback, setting vision, and other executive competencies.
Occupational Assessment Survey
The CFTC is also currently conducting an occupational assessment of
the executive and senior leadership occupations to capture knowledge,
skills, and abilities that are required for successful occupational
performance. When completed, the occupational profiles will support a
broad range of human capital programs and activities including:
recruitment and staffing, training and development, individual
development planning, and succession planning.

Question 4. How have negotiations with the National Treasury
Employees Union progressed and what has the Commission promised
regarding the pay and benefits of CFTC employees?
Answer. Collective bargaining with the National Treasury Employees
Union (Union) is in progress. The Union has submitted a preliminary
proposal to address bargaining ground rules, and the Commission is
preparing a response. The parties have yet to exchange proposals or
reach any agreements concerning pay and benefits at this time.
De Minimis
Question 5. The negative consequences to market participants and
liquidity resulting from a de minimis threshold that is set too low are
not theoretical. We observed these negative consequences when the CFTC
set a de minimis threshold of $25 million for swap dealing activity
with public power companies. How has the CFTC learned from this
experience?
Answer. The Commission's actions in connection with the de minimis
threshold demonstrate a deliberative approach that carefully considers
liquidity and other market conditions, as well as the policy benefits
of regulating swap dealers. For example, the CFTC received comments
from market participants after the de minimis exception rule was first
proposed regarding the impacts of a $25 million threshold on public
power companies. In response to those comments, CFTC staff studied the
issue and held a round table to gather further information. The
Commission ultimately amended the swap dealer de minimis rule on
September 23, 2014 to raise the threshold for entities dealing swaps to
public power companies to the $8 billion level applicable to swap
dealers generally. Furthermore, the CFTC is currently studying the de
minimis exception rule and issued the Swap Dealer De Minimis Exception
Preliminary Report on November 18, 2015. The report discusses the
policy goals that are achieved from a de minimis exception to
registration. CFTC staff has reviewed the public comments on that
report and are preparing a final report for consideration by the
Commission.
Position Limits
Question 6. Mr. Chairman, I appreciate that the Commission is
committed to hearing from the market participants it regulates through
the use of its various advisory committees. In one of the recent
meetings of the Energy and Environmental Markets Advisory Committee,
market participants discussed how the proposed rule on position limits
will reduce market liquidity.
How is the Commission working to ensure that its next position
limits proposal won't negatively impact market liquidity, in the way
your EEMAC panelists have outlined that it would?
Answer. EEMAC panelists noted that there was a substantial drop in
trading liquidity (and market depth), prior to the implementation of
the position limits proposal. They also expressed concern that the
position limits proposal would harm liquidity further, including ``out
the curve.'' Panelists have suggested, among other things, broadening
the enumerated hedges specified in the proposed rule, empowering the
exchanges to recognize non-enumerated bona fide hedging positions for
purposes of Federal position limits, and updating deliverable supply
estimates.
The Commission staff is examining all of these suggestions. As the
Commission works to finalize its rules on position limits, I am
committed to listening to market participants and working to arrive at
a rule that sensibly fulfills the statutory mandate to address the risk
of excessive speculation while insuring that commercial participants
can continue to use these markets efficiently to hedge risk.
Regulatory Coordination
Question 7. One example of a failure of regulatory coordination is
found in the differing definitions of U.S. Person used by financial
regulators. The CFTC will soon have two definitions, neither of which
is identical to definitions used by the SEC or the Prudential
Regulators. Why haven't regulators coordinated their efforts to develop
a single understanding of who is subject to their jurisdiction through
FSOC?
What is the value to the CFTC as a regulator to have different
rules for who must comply with U.S. swaps rules and U.S. security-based
swap rules?
Can you explain how a financial entity might engage in trading
activities that make it both a U.S. Person under the CFTC's definition,
but a non-U.S. Person under the SEC's definition of a U.S. Person?
Do you think that having two different definitions of a U.S. Person
increases compliance burdens for such a market participant?
Answer. Under the Dodd-Frank Act, responsibility for regulating the
OTC swaps market was bifurcated between the CFTC and the SEC, with the
CFTC given responsibility for all of the market other than a small
piece represented by security-based swaps. In addition, in certain
areas such as margin, rule-making authority was further divided between
these two agencies, as well as the Federal banking regulators. Given
the global nature of the swaps market, I agree that coordination among
national, as well as international regulators is critical. As Chairman,
I have made it a top priority.
Prior to my joining the Commission, guidance was issued in the
summer of 2013 on the cross-border application of its rules, which
included a U.S. person definition. The guidance stated that the
Commission will periodically review its cross-border policy in light of
future developments.
Recently, the Commission issued a final rule on margin for
uncleared swaps, which was developed after close consultation with U.S.
banking regulators, as we are required to do by law. The SEC was not
ready to develop a margin rule during this time; however, we engaged in
dialogue with them in order to try to harmonize our rules as much as
possible. The final rule is practically identical to the margin rules
adopted by the banking regulators.
In addition, the Commission has issued a proposed rule concerning
the cross-border application of the margin rule. With respect to the
cross-border issues, we faced a choice as to whether to take a
transactional-level approach consistent with the guidance, an entity-
level approach, or a hybrid of the two approaches that was consistent
with what was then being proposed by the Federal banking regulators. We
invited and received comments on the advanced notice of proposed rule-
making and received comments that were quite varied. We then proposed
the hybrid approach with a few modifications and worked with the
Federal banking regulators to finalize the rule, with the result that
they revised their cross-border approach to make it largely consistent
with ours.
The specific definition of U.S. person in the proposal is very
similar to that in the 2013 guidance. We did, however, make a few minor
changes in response to suggestions of market participants, all of which
have generally been welcomed by the market. The current rule-making
pertains only to margin, but I intend to look at the cross-border
implications of other rules through the notice and comment rule-making
processes.
The Commission will continue to collaborate with other regulators,
including the SEC, as we at the CFTC develop our swaps regulations to
ensure that our broader cross-border approach promotes greater global
harmonization, consistent with Dodd-Frank's goals of achieving greater
transparency and better risk mitigation in the swaps market. In so
doing, however, it is important to keep in mind the unique
circumstances in which the swaps market evolved. The Commission was
tasked with regulating a market that grew to a global scale without any
meaningful regulation. Developing a regulatory framework to fit that
market requires us to adapt and respond to rapid and continual changes
in the market. Moreover, while the Dodd-Frank Act established key
reform goals applicable to several Federal regulatory agencies, there
will inevitably be differences in the specific rules we adopt given
each agency's unique statutory mandate, regulatory history, and
underlying regulatory framework--and the differences in the markets and
market participants each oversees. The CFTC has made great progress in
harmonization to date, and we will continue to work towards narrowing
differences in our regulatory approaches.

Question 8. This past summer, the Commission proposed a rule
covering the cross-border application of margin requirements for
uncleared swaps (Proposed Rule). You've stated recently that you hope
to finalize that rule this spring. The Proposed Rule provides a
strikingly different definition of ``U.S. Person'' than the one
appearing in the Commission's Final Guidance regarding cross-border
swaps.
When the Commission finalizes the rule, will its definition of U.S.
Person supersede the Final Guidance's definition of a U.S. Person for
all cross-border activity?
If not, will the Commission be updating its Final Guidance to
reflect the new definition or does the Commission intend to maintain
two separate and distinct definitions of U.S. Person indefinitely?
Answer. The CFTC has proposed a modified U.S. person definition
that applies solely to the cross-border application of its margin
requirements. The proposed definition is substantially similar to the
definition used by the SEC in the context of cross-border regulation of
security-based swaps and is generally consistent with the U.S. person
interpretation set forth in the cross-border guidance, with a few
refinements that more closely align it with the SEC definition. Moving
forward, I have asked the staff to review the U.S. person definition in
the guidance and advise on whether we should seek to develop a U.S.
person definition that would apply to all of the Commission's swap
regulations adopted under the Dodd-Frank Act.

Question 9. The Governor of the Reserve Bank of India recently sent
a letter to the U.S. Ambassador to India, protesting the heavy-
handedness of the CFTC's international regulatory reach in requiring an
Indian clearinghouse to be subject to the CFTC's regulatory
jurisdiction because it was clearing trades for U.S. firms. Are you
aware of this letter? Have you engaged in discussions with Indian
officials to prevent U.S. firms from having to exit the Indian market?
Answer. Yes, I am aware of the letter from Governor Raghuram Rajan
of the Reserve Bank of India (``RBI'') to the U.S. Ambassador to India.
I have received a substantially identical letter. I responded to
Governor Rajan by letter, dated February 4, 2016, acknowledging receipt
of Governor Rajan's letter and expressing my desire to work with him
and his staff in addressing the concerns raised in his letter.
The Commodity Exchange Act requires any derivatives clearing
organization (``DCO'') that clears trades for U.S. firms to be
registered with the CFTC, but also grants the Commission exemptive
authority if the Commission determines that the DCO ``is subject to
comparable, comprehensive supervision and regulation.'' To date, the
CFTC has granted registration exemptions to clearinghouses in five
different jurisdictions (such clearinghouses are known as ``Exempt
DCOs''). In order to receive a registration exemption, each Exempt DCO
must demonstrate compliance with a basic set of conditions. In
addition, its regulator has to enter into a cooperative arrangement
with the CFTC.
The Clearing Corporation of India Ltd. (``CCIL''), which is
regulated by RBI, is applying to become an Exempt DCO. CCIL has
indicated it can meet most of the conditions, but has been advised by
RBI that it cannot meet certain conditions. I respect the concerns
expressed by Governor Rajan and want to make every effort to work with
the parties involved to address those concerns. To this end, the
Commission's Director of International Affairs traveled to Mumbai to
meet with RBI and CCIL staff on February 9, 2016 for the express
purpose of discussing the CCIL matter. Since that meeting, CFTC staff
has been discussing the matter with RBI staff by email and telephone.
Furthermore, given the potential impact of the matter on certain U.S.
firms, the Commission's Director of International Affairs also met with
representatives of such U.S. firms while in Mumbai.
Cybersecurity
Question 10. How is the CFTC coordinating with other U.S. financial
regulators on cybersecurity? What efforts are being taken by regulators
to develop common approaches to cybersecurity oversight? How is the
CFTC building on the NIST Cybersecurity Framework approach as it
develops its cyber rules?
Answer.
A. Coordination of Oversight
The Commission recognizes cybersecurity as one of the greatest
challenges facing the financial sector today, and places a high
priority on its cybersecurity oversight of derivatives markets,
clearing organizations, swap data repositories, and firms.
The Commission coordinates on cybersecurity with other U.S.
financial regulators on a regular and ongoing basis through its
membership on the Financial and Banking Information Infrastructure
Committee (FBIIC). FBIIC is the standing interagency committee through
which financial sector regulators cooperate and coordinate concerning
cybersecurity and critical infrastructure protection. Led by the
Department of the Treasury as the Sector Specific Agency for the
financial sector, FBIIC includes the CFTC, the Securities Exchange
Commission, the Federal Reserve, the Office of the Comptroller of the
Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and
12 other Federal financial regulators and national associations of
state financial regulators. Originally created under the President's
Working Group (PWG), FBIIC also assists the Financial Stability
Oversight Council concerning critical infrastructure protection issues.
The Commission participates in and benefits from FBIIC's effective
partnerships on cybersecurity issues with Federal law enforcement
agencies and the intelligence community, and with the private sector
through its private sector counterpart, the Financial Services Sector
Coordinating Council, which includes major markets, clearing
organizations, and firms across the U.S. financial sector.
The Commission has also helped to plan and participates actively in
the FBIIC's Hamilton Program series of public and private-sector
tabletop cybersecurity exercises which has been underway since late
2014 and will continue through 2016 and 2017. These exercises bring
together Federal financial regulators, law enforcement and intelligence
agencies, and systemically important financial sector firms, in order
to improve the sector's cybersecurity resilience and the communication
and coordination needed to respond to today's cybersecurity threat.
B. Development of Common Approaches to Oversight
The Commodity Exchange Act (CEA) requires derivatives markets,
clearing organizations, and swap data repositories to have system
safeguards-related programs of risk analysis and oversight with respect
to cybersecurity, and requires them to maintain automated systems that
are reliable and secure. These rules require such cybersecurity risk
analysis and oversight programs to incorporate and follow generally
accepted standards and best practices regarding cybersecurity.
The Commission's regular System Safeguards Examinations of
registrant cybersecurity draw on and apply best practice sources
provided and used by other financial regulators. This includes the
National Institute for Standards and Technology (NIST) Cybersecurity
Framework, the IT examination standards used by the Federal Financial
Institutions Examination Council--which includes the Federal Reserve,
FDIC, OCC, the National Credit Union Administration, the Consumer
Finance Protection Board, and state-level banking supervisors--and the
Financial Industry Regulatory Authority's 2015 Report on Cybersecurity
Practices, as well as others.
The Commission is also participating actively in ongoing
discussions among Federal financial regulators and major financial
sector trade associations including the Securities Industry and
Financial Markets Association, the Futures Industry Association, the
Financial Services Roundtable/BITS, and the American Bankers
Association, about ways to foster increased coordination and possible
use of common terminology and approaches with respect to cybersecurity
oversight.
C. Building on the NIST Cybersecurity Framework in developing rules
The Commission issued new proposed rules regarding cybersecurity
testing last December, and is currently reviewing comments and working
to prepare final rules we hope to issue this summer. The proposed rules
rely significantly on the NIST Cybersecurity Framework as an important
guide to best practices for cybersecurity.
Questions Submitted by Hon. Austin Scott, a Representative in Congress
from Georgia
Question 1. Chairman Massad, you testified that you would not seek
access to an AT Person's algorithmic source code without a warrant and
that you are simply seeking to ensure that they preserve it so that the
Commission can ``go get it using the proper procedures.'' Please
clarify for the Committee, what procedures were you contemplating? What
specific safeguards are you considering with respect to Commission's
access to algorithmic source codes?
Answer. The U.S. Commodity Futures Trading Commission (Commission)
recently approved proposed rules that mark a comprehensive regulatory
response to the evolution of automated trading on U.S. designated
contract markets (DCMs). The proposed rules, known collectively as
Regulation Automated Trading or Regulation AT, represent a series of
risk controls, transparency measures, and other safeguards to enhance
the U.S. regulatory regime for automated trading. The notice of
proposal is open for a 90 day public comment period. The Commission is
paying close attention to participants' comments regarding Regulation
AT's proposed requirements related to algorithmic source code,
including its incorporation of Regulation 1.31's inspection provisions.
In response to questions about the Regulation AT proposed rule, I
have tried to clarify questions that have come forward regarding the
source code in testimony and public speeches. Specifically, the rule
asks companies simply to preserve their source code so that if there is
a problem and the Commission does need to get it, we can do that using
the proper procedures. I am committed to a final rule that respects and
protects confidentiality while at the same time ensuring that source
code is preserved and is available to us when we need to reconstruct
market events.
As the comment period for Regulation AT draws to a close, the
Commission will actively consider all comments received regarding
access to algorithmic source code. The Commission looks forward to
addressing comments raised by market participants, while also ensuring
that it has access to all information necessary for effective
regulatory oversight and the protection of markets and market
participants.

Question 2. In contrast with your statement, Reg AT requires that
``Each AT Person shall keep such source code repository, and make it
available for inspection, in accordance with Section 1.31.'' As you
know, Section 1.31 requires that ``books and records shall be open to
inspection by any representative of the Commission, or the United
States Department of Justice'' and that, ``[s]uch production shall be
made . . . to a Commission representative upon the representative's
request.''
Does Section 1.31 require a Commission's representative to obtain a
warrant before requesting documents from a market participant? If not,
is Section 1.31 the appropriate record-keeping standard for this data
and the standard that you contemplated in your response to me?
Answer. Commission Regulation 1.31 is a general record-keeping rule
applicable to a wide range of Commission registrants. As the comment
period for Regulation AT draws to a close, the Commission and its staff
will actively consider all comments received regarding access to
algorithmic source code. The Commission looks forward to addressing
comments raised by market participants, while also ensuring that it has
access to all information necessary for effective regulatory oversight
and the protection of markets and market participants. In particular, I
am committed to a final rule that respects and protects confidentiality
while at the same time ensuring that source code is preserved and is
available to us when we need to reconstruct market events.
Question Submitted by Hon. Vicky Hartzler, a Representative in Congress
from Missouri
Question. On January 15th, Chairman Austin Scott and I sent a
letter to the Commission raising concerns about the CFTC's final rule
on Ownership Control and Reporting (OCR). Thank you for your timely
response on February 9th. In our letter we referenced the June 26, 2015
FIA petition on the OCR Rule. Could you please provide us with an
update on the progress of your response to that petition?
Additionally, as we mentioned in our letter, the OCR rule is
placing heavy burdens on smaller, more agriculturally focused FCMs and
their clients, which is causing many firms to consider eliminating this
portion of their business. It appears that certain rulemakings,
including the OCR rule, are pushing the industry toward greater
consolidation. Is it your intention that FCMs continue to consolidate
so that they can better bear the increased regulatory burdens from the
OCR rule?
Answer. The Commission's OCR rules represent an important effort to
automate data reporting and enhance the Commission's market
surveillance capabilities. These rules seek to automate and strengthen
important market surveillance functions to better protect markets and
market participants from fraud and abuse. DMO staff has held extensive
discussions with market participants regarding the OCR rules and their
implementation. In addition, DMO staff is currently considering the
issuance of no-action relief to further address industry concerns and
applicable compliance deadlines.
The decline in the number of FCMs has been going on for over a
decade and is due to many factors, which I would be happy to discuss
with you. Our staff has examined this issue and the Commissioners have
discussed this issue at some of our advisory committee meetings. On
many occasions I have expressed my view that having a robust clearing
member industry is critical to making sure that all participants have
access to the derivatives markets and to the health and resiliency of
clearinghouses.
Question Submitted by Hon. Dan Newhouse, a Representative in Congress
from Washington
Question Chairman Massad, I would like to get your perspective on
allegations by U.S. aluminum producers that Chinese aluminum
manufacturers are culpable of dumping, and responsible for suppressed
prices of aluminum here in the United States.
The Administration is considering instituting antidumping duties to
assist aluminum producers here in the United States. While I appreciate
the attempt to assist domestic producers, I worry about the effect
duties may have on aluminum prices and availability here in the U.S.,
and the impact it will have on aluminum users and consumers, especially
given that currently, domestic demand vastly outweighs domestic
production. Can you comment on the status of this effort to impose
tariffs, and does the Commission's economic division have an
alternative point of view on this issue? Also, can you comment on what
you perceive the impact of tariffs would have on prices and
availability of supply for domestic aluminum users?
Answer. The Commodity Future Trading Commission's Office of the
Chief Economist provides economic analysis on the Commission's
underlying regulations, as well economic support and advice on policy
issues facing the Commission. Price discovery is an important function
of these markets and our surveillance of the markets considers broader
economic factors influencing price. However, the agency, and its
economic division, does not predict or forecast prices based on factors
such as the specifics of trade negotiations or tariff levels, nor do we
have jurisdiction with respect to such matters.

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