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CFTC to test new proposals under House bills

Thursday 26 January 2012 - by Andrew Hickley

The US House Agriculture Committee has passed a bill that could require the Commodity Futures Trading Commission to conduct more rigorous cost-benefit analyses before it approves new regulations.

Under the proposals, the CFTC's office of the chief economics would have to assess both the quantitative and qualitative effect of proposals, meaning the agency could only approve new regulation where it could justify the costs.

The CFTC would also be required to evaluate the impact on market liquidity, price discovery, alternatives to direct regulation, and whether the measure is inconsistent with or duplicates other agency's existing requirements.

The agency has come under fire for its lack of cost-testing new rules under Dodd Frank, with the securities industry launching a lawsuit against new position limits after saying the decision-making process used by the CFTC was "procedurally flawed".

Commissioner Scott O'Malia has also been publicly outspoken about the quality of analysis that has been conducted on a number of its new requirements.

The committee's proposal came as one of six bills it approved on Wednesday.

Other measures include extending end-user exemptions, a refined definition of a swap execution facility, and clarifying the definition of a swap deal in the Commodity Exchange Act to ensure less users face regulatory requirements.

House Agriculture Committee chairman Frank Lucas said: "I appreciate the bipartisan leadership of my colleagues on the bills that advanced today. Our effort is to ensure that America's job creators - our farmers, ranchers, small businesses, community banks, energy companies and manufacturers - are not overburdened by financial regulations.

"Without these important changes, regulations could deter businesses from hedging against risk. That increases costs for consumers and reduces stability in the market place, which is contrary to the intent of the original Dodd Frank legislation."

Three of the bills have already been passed by the House Financial Services Committee, and could now be scheduled for a full vote in the Republican-controlled House and be taken up in the Democrat-led Senate.

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