Commodity Futures Modernization Act of 2000

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The Commodity Futures Modernization Act of 2000 or CFMA (H.R. 5660 and S. 3283) is United States federal legislation which repealed the Shad-Johnson jurisdictional accord, which had banned single-stock futures in 1982.[1]. The legislation also provided certainty that products offered by banking institutions would not be regulated as futures contracts[2].

The act was incorporated by reference into H.R. 4577, an omnibus spending bill. It was passed by the 106th United States Congress and signed by President Bill Clinton on December 21, 2000; the legislation thus became law as a part of H.R. 4577 - Pub.L. 106-554, §1(a)(5).

The act has been cited as a public-policy decision significantly contributing to Enron's bankruptcy in 2001 and the much broader liquidity crisis of September 2008 that led to the bankruptcy filing of Lehman Brothers and emergency Federal Reserve Bank loans to American International Group[3] and to the creation of the U.S. Emergency Economic Stabilization fund.

Treasury Secretary Tim Geithner announced on May 13, 2009 the Obama Administration's intent to amend the CFMA, and related laws of the Commodities Exchange Act and Securities Exchange Act, changing the authority of regulatory bodies, including the Commodities Futures Trading Commission and the Securities Exchange Commission and other regulators over previously unregulated derivatives. In brief, to constrain systemic risks, the proposal requires the clearing of all standardized over the counter derivatives through regulated central counter-parties (CCPs) via a regulated central exchange. [4][5][6]


Contents

[edit] Legislative history

The "Commodity Futures Modernization Act of 2000" (H.R. 5660) was introduced in the House on December 14, 2000 by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA), Rep. Larry Combest (R-TX), Rep. John J. LaFalce (D-NY) and Rep. Jim Leach (R-IA). The bill was never debated in the House.[7]

The companion bill (S. 3283) was introduced in the Senate on December 15, 2000, the day before the Christmas recess, by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL), Sen. Phil Gramm (R-TX), Sen. Chuck Hagel (R-NE), Sen. Thomas Harkin (D-IA) and Sen. Tim Johnson (D-SD) . The bill was never debated in the Senate[8].

The Republican leadership of the House incorporated "The Commodity Futures Modernization Act of 2000 (H.R.5660)" by reference, as Section 1(a)(7), in a long and complex conference report to the 11,000 page long "2000 omnibus budget bill" formally known as "The Consolidated Appropriations Act for FY2001(Labor, Health and Human Services, and Education Appropriations Bill) (H.R.4577)." 157 Democrats and 133 Republicans voted for the appropriations bill. 51 Republicans and 9 Democrats opposed the appropriations bill.[9] The Senate version passed by unanimous consent. President Clinton signed the omnibus budget bill into law on December 21, 2000 as Pub.L. 106-554

[edit] The "Enron loophole"

Main article: Enron loophole

The Commodity Futures Modernization Act of 2000 has received criticism for the so-called "Enron loophole," 7 U.S.C. § 2(g) and 7 U.S.C. § 2(h)(3), which exempts most over-the-counter energy trades and trading on electronic energy commodity markets. The "loophole" was drafted by lobbyists for Enron working with senator Phil Gramm[10] seeking a deregulated atmosphere for their new experiment, "Enron On-line."[11]

Several Democratic legislators introduced legislation to close the loophole from 2000-2006[12][13] but were unsuccessful.

In September 2007, Senator Carl Levin (D-MI) introduced Senate Bill S.2058 specifically to close the "Enron Loophole" [14] This bill was later attached to H.R. 6124, the Food, Conservation, and Energy Act of 2008, aka "The 2008 Farm Bill". President Bush vetoed the bill, but was overridden by both the House and Senate, and on June 18, 2008 the bill was enacted into law.[15]. One specific reason behind its introduction was to address the record high oil prices of the 2000s energy crisis.

The prohibition on single-stock futures and narrow-based indices that had been in effect until the passage of this act was known as the Shad-Johnson Accord because it was first announced in 1982, as part of a jurisdictional pact between John S.R. Shad, then chairman of the U.S. Securities and Exchange Commission and Phil Johnson, then chairman of the Commodity Futures Trading Commission[16].

[edit] H.R. 4577

H.R. 4577 was an appropriations/budget bill encompassing the funding for the Departments of Labor, Health and Human Services, and Education for fiscal year 2001 which had already begun in September 2000.[17] This budget bill included:

  1. H.R. 5656 - Labor HHS Education Appropriations;
  2. H.R. 5657 - Legislative Branch Appropriations;
  3. H.R. 5658 - Treasury Appropriations;
  4. H.R. 5666 - Miscellaneous Appropriations - except section 123 relating to the enactment of H.R. 4904;
  5. H.R. 5660 - Commodity Futures Modernization;
  6. H.R. 5661 - Medicare, Medicaid and SCHIP Benefits Improvement and Protection;
  7. H.R. 5662 - Community Renewal Tax Relief and Medical Savings Accounts;
  8. H.R. 5663 - New Markets Venture Capital Program; and
  9. H.R. 5667 - Small Business Reauthorization.

[edit] References

  1. ^ http://books.google.com/books?id=IWLigLcTSIIC&pg=PA2&lpg=PA2&dq=%22shad-johnson%22&source=bl&ots=Tn1qXQR3uI&sig=z0H6f6n6bEi4ffSCmV7ub1TRNm0&hl=en&ei=h4cPSoPnIoWwtAPixYTwAg&sa=X&oi=book_result&ct=result&resnum=2 "Single stock futures By Kennedy E. Mitchell"
  2. ^ http://thomas.loc.gov/cgi-bin/bdquery/z?d106:SN03283:@@@T "Library of Congress"
  3. ^ Longobardi, Elinore (2008-09-24). "The Press and Phil Gramm: The alternative press leads on the policy roots of the credit crisis". Columbia Journalism Review. http://www.cjr.org/the_audit/post_140.php?page=all. 
  4. ^ "Regulatory Reform of Over-The-Counter (OTC) Derivatives". Press Release (United States Department of the Treasury). May 13, 2009. http://treasury.gov/press/releases/tg129.htm. Retrieved on May 14, 2009. 
  5. ^ Geithner, Timothy (May 13, 2009). "Letter from Tim Geithner to Senator Harry Reid". United States Department of the Treasury. http://www.financialstability.gov/docs/OTCletter.pdf. Retrieved on May 14, 2009. 
  6. ^ Labaton, Stephen; Jackie Calmes (May 13, 2009). "Obama Urges Rules on Investments Tied to Financial Crisis". New York Times. http://www.nytimes.com/2009/05/14/business/14regs.html. Retrieved on May 14 2009. 
  7. ^ "H.R. 5660 (106th): Commodity Futures Modernization Act of 2000". GovTrack.us. http://www.govtrack.us/congress/bill.xpd?bill=h106-5660. 
  8. ^ http://thomas.loc.gov/cgi-bin/bdquery/z?d106:SN03283:@@@X "Library of Congress"
  9. ^ Roll call vote tally Clerk of the House of Representatives.
  10. ^ Corn, David (July/August 2008). "Foreclosure Phil". Mother Jones Magazine. http://www.motherjones.com/news/feature/2008/07/foreclosure-phil.html. 
  11. ^ Juhasz, Antonia. Interview with Terry Gross. Fresh Air (audio). National Public Radio. WHYY-FM Chicago, Illinois. 2008-10-07. Retrieved on 2008-10-07.
  12. ^ Behr, Peter (2003-10-30). "Feinstein amendment hits snag, consequences unclear (Enron's Legacy, Part I)". Futures (Cedar Falls, Iowa). http://www.allbusiness.com/accounting-reporting/budget-operating-budget/183461-1.html. 
  13. ^ Collins, Daniel P. (2002-05-01). "Senate Democrats Attempting to Close 'Enron Loophole'". The Washington Post. http://pqasb.pqarchiver.com/washingtonpost/access/433656031.html?dids=433656031:433656031&FMT=ABS&FMTS=ABS:FT&date=OCT+30%2C+2003&author=Peter+Behr&pub=The+Washington+Post&desc=Senate+Democrats+Attempting+to+Close+%27Enron+Loophole%27&pqatl=google. Archived on 2003-10-30.
  14. ^ "S.2058, 110th Congress". thomas.loc.gov. 2007-09-17. http://thomas.loc.gov/cgi-bin/bdquery/z?d110:s.02058:. Retrieved on 2008-10-08. 
  15. ^ "The Farm Bill". House Agriculture Committee. 2008-06-18. http://agriculture.house.gov/inside/FarmBill.html. Retrieved on 2008-10-08. 
  16. ^ http://www.yourdictionary.com/finance/shad-johnson-agreement "Dictionary.com"
  17. ^ "H.R. 4577, 106th Congress". thomas.loc.gov . http://thomas.loc.gov/cgi-bin/bdquery/z?d106:H.R.4577:. Retrieved on 2008-10-08. 

[edit] External links

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