OPENING STATEMENT OF

SEN. RICHARD G. LUGAR, CHAIRMAN
SENATE COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

February 11, 1997

Today, the committee holds the first of two hearings on S. 257, a bill to reform the Commodity Exchange Act, which I introduced on February 4 with Senator Harkin and Senator Leahy.

The U.S. futures industry is a world leader in risk management and price discovery. In recent years, over-the-counter derivatives have also grown rapidly. These off-exchange products serve important business needs, as do exchange-traded futures and options. At the same time, competition from overseas futures exchanges has also increased.

S. 257 builds on S. 2077, which Senator Leahy and I introduced last fall. I appreciate Senator Leahy's continued support in this area. I also want to thank Senator Harkin for his cooperation, leadership and assistance with the new legislation.

I believe the concepts in S. 257 are sound. At the same time, witnesses today and Thursday may suggest helpful changes to the bill. The committee will consider all these suggestions.

Among the most controversial issues in the bill is the "Treasury amendment," a section of the Commodity Exchange Act that dates to 1974. It excludes a number of products from regulation by the Commodity Futures Trading Commission unless they are offered on a board of trade. Recent litigation, enforcement cases and inter-agency disputes have made it necessary for Congress to clarify and re-think the Treasury amendment.

At the committee's request, the CFTC and the Treasury Department attempted to reconcile their different views on the Treasury amendment. I thank them publicly for their efforts. Unfortunately, they did not succeed. Both the CFTC and the Treasury will testify today and offer advice. The proposal of the Treasury Department appears to be more consistent with the provisions of S. 257 than is the proposal of the CFTC. Our informal discussions with several other financial regulators also suggest that they may be more inclined to agree with Treasury.

An important theme of S. 257 is to allow U.S. futures exchanges to compete on more equitable terms with over-the-counter markets and overseas exchanges. I believe this is nececessary if U.S. exchanges are to remain strong and competitive over the long term.

The health of exchanges is not just important to their members. If that were the only concern, a legislative approach would not be appropriate. Instead, there is a public interest in viable exchanges because they help achieve price discovery for many commodities and allow businesses to hedge risks efficiently.

Some use this public interest to argue that we should not change current regulations. My belief is that by streamlining regulation where that can be done prudently, we will in fact safeguard the public interest. However, it is a matter of legitimate disagreement just where to strike the balance between reducing regulatory costs and preserving the benefits that regulation brings with it.

The CFTC's testimony today criticizes several provisions of S. 257. Expressing its views is not only the Commission's right but its duty. Some of the CFTC's recent statements, however, reflect a point of view which I cannot share. The Commission has taken an expansive, indeed aggressive, view of its appropriate jurisdiction in its December 31 proposal on the Treasury amendment. The CFTC's position in this matter seems to imply that even where market participants are already supervised by other regulators, this may not be adequate and the CFTC should step in. This is one of the reasons that the Treasury Department's views are more likely to find support on the committee.

In addition, the CFTC has responded with perhaps undue alarm to proposals for less regulation. It would be unfortunate if we began this debate with an alarmist tone rather than a sober discussion on the merits.

The provisions of S. 257 are not set in stone. Some of its proposals are deliberately bold. Without such bold proposals, I do not believe discussion would move forward. We will take into account the advice of the Administration, the private sector and anyone else with an interest as we proceed.