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104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    104-104



                 April 6, 1995.--Ordered to be printed


Mr. Roberts, from the Committee on Agriculture, submitted the following

                              R E P O R T

                        [To accompany H.R. 618]

      [Including cost estimate of the Congressional Budget Office]
    The Committee on Agriculture, to whom was referred the bill 
(H.R. 618) to extend the authorization for appropriations for 
the Commodity Futures Trading Commission through fiscal year 
2000, having considered the same, report favorably thereon 
without amendment and recommend that the bill do pass.

                           Brief Explanation

    H.R. 618, the Commodity Futures Trading Commission Act of 
1995, authorizes appropriations for the Commodity Futures 
Trading Commission is such sums as are necessary for each of 
the fiscal years 1995 through 2000. The bill contains no other 
amendments to the Commodity Exchange Act.

                            Purpose and Need

    The nation's commodity futures markets are a valuable 
resource to U.S. commerce and industry, providing efficient 
risk management instruments that also are the main price 
discovery mechanism for the nation's agricultural economy, 
which is a significant contributor to the wealth of the United 
States and the mainstay of rural America.
    The industry continues to grow at a phenomenal rate. In 
calendar year 1994, total trading of futures and options exceed 
650 million contracts, more than 26 percent greater than in the 
previous year. Interest rate futures dominate these markets. 
Nearly 50 percent of the total volume in 1994 was in interest 
rate products, and they accounted for almost 70 percent of the 
total growth last year. During fiscal year 1990 in comparison, 
the total volume of futures and option activity was 334 million 
contracts. There are currently 10 exchanges actively trading 
futures and option contracts in the U.S.; however, the 
Commission, in addition to its exchange oversight, also 
oversees the regulation of 255 commodity brokerage firms, more 
than 49,000 salesmen, 9,000 floor brokers, 1,164 floor traders, 
more than 1,200 pool operators, about 2,500 commodity trading 
advisors and hundreds of introducing brokers.
    The Commission's responsibilities also include over-the-
counter (OTC) derivative instruments, which continue to develop 
under the exemptive authorities Congress granted the Commission 
in its last reauthorization enacted as a part of the Futures 
Trading Practices Act of 1992 (1992 FTPA) (P.L. 102-546). In 
conjunction with these new authorities, the Commission released 
in fiscal year 1994 a comprehensive report, ``OTC Derivative 
Markets and Their Regulation,'' which concluded that no 
fundamental changes in the regulatory structure appeared to be 
needed, although greater coordination among federal financial 
regulators would help assure that oversight remains adequate 
for these constantly changing markets.
    Other reports mandated by the 1992 FTPA were delivered in a 
timely manner and included, in addition to the OTC study, a 
study of global competitiveness of U.S. futures markets, an 
analysis of penalties imposed by the Commission and industry 
self-regulatory organizations, an assessment of exchange audit 
trail and trade recordation systems and an assessment of the 
regulatory benefits of computerized trading systems.
    Although the Commission's responsibilities in regulating 
financial instruments have evolved with market developments, 
the Commission still places a primary emphasis on the 
exchanges' agricultural markets. Farmers, ranchers and 
agribusinesses understand the importance of these markets to 
their business success and actively use them for hedging. In 
addition, agricultural commodity prices discovered in U.S. 
futures markets reflect the worldwide attention and use of 
these markets.
    In addition, the U.S. Department of Agriculture has 
expanded its agricultural options pilot program authorized by 
the 1990 Food, Agriculture, Conservation and Trade Act, and 
farmers continue to show an interest is using options in their 
marketing strategies.
    As the Committee noted in its 1992 reauthorization, the 
Commission is a permanent agency. The Commission has achieved 
parity with other federal regulators, and the Committee intends 
to pursue actively its legislative and oversight 
responsibilities to shape the size and the role of the 
Commission so that it may continue to meet future challenges 
and innovations in the nation's futures and over-the-counter 

                      Section-by-Section Analysis

                         Section 1--Short title

    Section 1 provides that the bill may be cited as the 
Commodity Futures Trading Commission Reauthorization Act of 
               Section 2--Authorization of Appropriations

    Section 2 amends Section 12(d) of the Act to provide 
authorization for appropriations in such sums as are necessary 
for each of the fiscal years 1995 through 2000.

                        Committee Consideration

                              I. Hearings

    The Subcommittee on Risk Management and Specialty Crops 
held public hearing on February 28, 1995, on H.R. 618. 
Witnesses included Mary L. Schapiro, Chairman of the Commodity 
Futures Trading Commission; Patrick H. Arbor, Chairman of the 
Chicago Board of Trade; John F. Sandner, Chairman of the 
Chicago Mercantile Exchange; Bennett J. Corn, President of the 
Coffee, Sugar and Cocoa Exchange; Daniel Rappaport, Chairman of 
the New York Mercantile Exchange; Peter F. Karpen, Chairman of 
the Futures Industry Association; John G. Gaine, General 
Counsel of the Managed Futures Association; and Robert K. 
Wilmouth, Chairman, National Futures Association.
    The Subcommittee also received written statements for the 
record from the National Grain and Feed Association, the Kansas 
City Board of Trade, the American Cotton Shippers Association, 
and the National Cattlemen's Association.
    Four important issues were addressed by witnesses during 
the Subcommittee hearing: enhanced audit trail and trade 
recordation systems, transaction taxes, the treatment of swap 
transactions under Part 35 of the Commission's rules and the 
merger of the CFTC and SEC.
    CFTC Chairman Schapiro specifically addressed the audit 
trail issue in her prepared testimony. She testified that, 
``The Commission believes that the exchanges can make 
significant improvements to their current audit trail systems 
through non-electronic enhancements and that such improvements 
can demonstrate a good faith attempt to meet the 1995 standards 
of independence, unalterability and sequencing.''
    In response to a question from Subcommittee Chairman Ewing, 
Ms. Schapiro reiterated that `` * * * we believe that with 
substantial enhancements, electronic and non-electronic, to 
existing audit trail systems, that the exchanges can ultimately 
meet the requirements of the '92 statue.''
    In the case of the Clinton Administration's proposed 
transaction taxes, Mr. Ewing asked Ms. Schapiro about the 
effects of transaction taxes on U.S. futures markets' 
competitiveness in global markets. Ms. Schapiro acknowledged 
that adding costs to futures transactions may discourage some 
market participants from using U.S. markets and that she was 
sensitive to the impact transaction taxes might have. However, 
she indicated she could not quantify what that impact might be.
    In response to concerns about the Commission's treatment of 
swap transactions expressed in a letter to Subcommittee 
Chairman Ewing from Mr. Baker, a Member of the Committee, and a 
written question submitted by Mr. Doolittle, a Member of the 
Subcommittee, Ms. Shapiro indicated that the Commission's views 
on swap contracts had not changed since the Commission 
published a ``Policy Statement Concerning Swap Transactions'' 
in the Federal Register on July 21, 1989.
    The Commission's response, delivered via Subcommittee 
Chairman Ewing on April 4, 1995, to Mr. Doolittle specifically 
noted the Congress made clear in the 1992 FTPA that legal 
certainty was needed in this area; that as long as swap 
transactions continued to meet certain specifications, the 
Commission would adhere to the 1989 policy statement; and that 
Congress did not require the Commission to determine whether or 
not swap transactions are futures and, indeed, the Commission 
did not make that determination in its Part 35 rules.
    Finally, the Chicago Board of Trade, the Chicago Mercantile 
Exchange and the Coffee, Sugar and Coacoa Exchange testified in 
opposition to a merger of the Commodity Futures Trading 
Commission and the Securities and Exchange Commission, citing 
lack of additional benefit in cost savings or a reduction in 
government bureaucracy.

                     II. Subcommittee Consideration

    The Subcommittee on Risk Management and Specialty Crops met 
pursuant to notice on February 28, 1995, to consider H.R. 618, 
the Commodity Futures Trading Commission Act of 1995.
    Chairman Ewing called the meeting to order for the purpose 
of considering H.R. 618 and the Committee Clerk established 
that a quorum was present. The Committee Counsel explained H.R. 
618 and indicated to the Subcommittee that a substantially 
identical bill, S. 178, had passed the Senate February 10, 
1995, had been received in the House and was being held at the 
Speaker's desk. On motion of Mr. Rose, the Subcommittee ordered 
the bill, H.R. 618, favorably reported to the full Committee by 
voice vote and in the presence of a quorum.

                   III. Full Committee Consideration

    The Committee on Agriculture met, pursuant to notice, on 
April 4, 1995. Chairman Roberts called the meeting to order in 
the presence of a quorum for the consideration of H.R. 618, the 
Commodity Futures Trading Commission Reauthorization Act of 
1995. Mr. de la Garza submitted an opening statement for the 
    Mr. Ewing was recognized to deliver an opening statement 
and to explain the bill.
    Mr. Ewing moved that the Committee adopt the bill. By a 
voice vote, and in the presence of a quorum, the Committee 
ordered the bill to be reported to the House with the 
recommendation that the bill do pass and then adjourned.
                  Reporting the Bill--Roll Call Votes

    No amendments were offered to the bill in Committee. In 
compliance with clause 2(l)(2) of rule XI of the House of 
Representatives, the bill was reported with a quorum actually 
present. There was no motion or request for a recorded vote.

          Budget Act Compliance (Section 308 and Section 403)

    The provisions of clause 2(l)(3)(B) of Rule XI of the Rules 
of the House of Representatives and section 308(a) of the 
Congressional Budget Act of 1974 (relating to estimates of new 
budget authority, new spending authority, or new credit 
authority, or increased or decreased revenues or tax 
expenditures) are not considered applicable. The estimate and 
comparison required to be prepared by the Director of the 
Congressional Budget Office under clause 2(l)(C)(3) of Rule XI 
of the Rules of the House of Representatives and section 403 of 
the Congressional Budget Act of 1974 submitted to the Committee 
prior to the filing of this report are as follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, April 5, 1995.
Hon. Pat Roberts,
Chairman, Committee on Agriculture,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 618, the 
Commodities Futures Trading Commission Reauthorization Act of 
    Enactment of H.R. 618 would not affect direct spending or 
receipts. Therefore, pay-as-you-go procedures would not apply 
to the bill.
    If you wish further details on this estimate, we will be 
pleased to provide them.
                                             James L. Blum,
                                             (For June E. O'Neill).

               congressional budget office cost estimate

    1. Bill number: H.R. 618.
    2. Bill title: Commodities Futures Trading Commission 
Reauthorization Act of 1995.
    3. Bill status: As ordered reported by the House Committee 
on Agriculture on April 4, 1995.
    4. Bill purpose: H.R. 618 would authorize the appropriation 
of such sums as are necessary for the Commodities Futures 
Trading Commission (CFTC) for the fiscal years 1995-2000.
    5. Estimated cost to the Federal Government: Funds for CFTC 
have been appropriated for 1995, and the estimate assumes that 
no additional appropriation will be necessary for this fiscal 
year. Because the bill does not provide a specific 
authorization, the table shows two alternative authorization 
levels for fiscal years 1996-2000--the 1995 appropriation for 
CFTC without adjustment for anticipated inflation and the 1995 
appropriation with adjustment for inflation. Outlay estimates 
are based on historical spending rates for this program and 
assume that appropriations will be provided before the start of 
each fiscal year.

                      1995     1996     1997     1998     1999     2000 
Without adjustment                                                      
 for inflation:                                                         
     Level........        0       49       49       49       49       49
     Outlays......        0       42       49       49       49       49
With adjustment                                                         
 for inflation:                                                         
     Level........        0       51       53       56       58       60
     Outlays......        0       44       53       55       57       60

    The costs of this bill fall within budget function 370.
    6. Comparison with spending under current law: The fiscal 
year 1995 appropriation for CFTC activities is $49 million. If 
appropriations were to remain at the 1995 level, projected 
spending would not exceed the amount under current law. If 
appropriations were to increase each year to reflect 
anticipated inflation, budget authority and outlays would 
exceed the levels under current law by amounts growing to $11 
million in 2000.
    7. Pay-as-you-go considerations: None.
    8. Estimated cost to State and local governments: None.
    9. Estimate comparison: None.
    10. Previous CBO estimate: On February 1, 1995, CBO 
provided a cost estimate for S. 178, the CFTC Reauthorization 
Act of 1995, as ordered reported by the Senate Committee on 
Agriculture, Nutrition, and Forestry on February 1, 1995. 
Because the two bills are identical, the cost estimates are the 
    11. Estimate prepared by: John Webb.
    12. Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.
                     Inflationary Impact Statement

    Pursuant to clause 2(l)(4) of Rule XI of the Rules of the 
House of Representatives, the Committee estimates that 
enactment of H.R. 618, will have no inflationary impact on the 
national economy.

                          Oversight Statement

    No summary of oversight findings and recommendations made 
by the Committee on Government Reform and Oversight under 
clause 2(l)(3)(D) of Rule XI of the Rules of the House of 
Representatives was available to the Committee with reference 
to the subject matter specifically addressed by H.R. 618.
    No specific oversight activities other than the hearings 
detailed in this report were conducted by the Committee within 
the definition of clause 2(b)(1) of Rule X of the Rules of the 
House of Representatives.

                        Changes in Existing Law

    In compliance with clause 3 of Rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill are shown as follows (existing law proposed to be 
omitted is enclosed in black brackets, new matter is printed in 
italic, and existing law in which no change is proposed is 
shown in roman):

                         Commodity Exchange Act

    Sec. 1(a) * * *
          * * * * * * *
    Sec. 12(a) * * *
          * * * * * * *
    [(d) There are authorized to be appropriated to carry out 
this Act--
          (1) $53,000,000 for fiscal year 1993; and
          (2) $60,000,000 for fiscal year 1994.]
    (d) There are authorized to be appropriated such sums as 
are necessary for each of the fiscal years 1995 through 2000.