The Commodity Futures Modernization Act of 2000 ( CFMA ) is a United States federal law that ensures that over-the-counter (OTC) derivatives remained unregulated .
135-503: The Commodity Futures Trading Commission (CFTC) had desired to have "functional regulation" of the market, but the CFMA rejected this approach. Instead, the CFTC continued to do "entity-based supervision of OTC derivatives dealers". The CFMA's handling of OTC derivatives, such as credit default swaps , has become controversial, as these derivatives played a major role in the 2008 financial crisis and
270-478: A federal structure with two overlapping power centers so that each citizen as an individual is subject to the powers of state government and national government. To protect against abuse of power, each branch of government – executive, legislative, and judicial – had a separate sphere of authority and could check other branches according to the principle of the separation of powers . Furthermore, there were checks and balances within
405-582: A "driving force in American government" and a "remarkably resilient institution". Congress is the "heart and soul of our democracy", according to this view, even though legislators rarely achieve the prestige or name recognition of presidents or Supreme Court justices ; one wrote that "legislators remain ghosts in America's historical imagination." One analyst argues that it is not a solely reactive institution but has played an active role in shaping government policy and
540-451: A "lame duck" session, Treasury Secretary Summers "urged" Congress to move forward with legislation on OTC derivatives based on the "extraordinary bipartisan consensus this year on these very complex issues.". When Congress returned into session for two days in mid-November, the sponsor of H.R. 4541, Representative Thomas Ewing (R-IL), described Senator Gramm as the "one man" blocking Senate passage of H.R. 4541. Senator Richard G. Lugar (R-IN),
675-435: A Derivatives Policy Group through which six large securities firms conducting the great majority of securities firm OTC derivatives activities reported to the CFTC and SEC about their activities and adopted voluntary principles similar to those applicable to banks. Insurance companies, which represented a much smaller part of the market, remained outside any federal oversight of their OTC derivatives activities. In 1997 and 1998
810-468: A Senate and House of Representatives." The House and Senate are equal partners in the legislative process – legislation cannot be enacted without the consent of both chambers. The Constitution grants each chamber some unique powers. The Senate ratifies treaties and approves presidential appointments while the House initiates revenue -raising bills. The House initiates impeachment cases, while
945-495: A conflict developed between the CFTC and the SEC over an SEC proposal to ease its broker-dealer regulations for securities firm affiliates that engaged in OTC derivatives activities. The SEC proposed relaxed net capital and other rules (known as "Broker-Dealer Lite") for OTC derivatives dealers. The CFTC objected that some activities that would be authorized by this proposal were not permitted under
1080-474: A credit default swap on a "non-exempt security" (i.e. an equity security or a "non-exempt" debt obligation that qualified as a "security"). As before 1992, the application of such state laws to a credit default swap (or any other swap) would depend upon a court finding the swap was a gambling, "bucket shop", or otherwise illegal transaction. As described in Section 1.2.1 above, legal uncertainty for security-based swaps
1215-421: A farmer might set today the price at which the farmer would deliver to a grain elevator or other buyer a certain number of bushels of wheat to be harvested next summer. By the early 1980s a market in interest rate and currency "swaps" had emerged in which banks and their customers would typically agree to exchange interest or currency amounts based on one party paying a fixed interest rate amount (or an amount in
1350-470: A full study of the issue by the entire PWG. CFTC Chair Mrs.Brooksley Born replied that the CFTC had exclusive authority over "futures" under the CEA and could not allow the other PWG members to dictate the CFTC's authority under that statute. She pointed out the "concept release" did not propose, nor presuppose the need for, any change in the regulatory treatment of OTC derivatives. She noted, however, that changes in
1485-579: A hedge fund it managed. The near collapse was widely attributed to OTC derivatives transactions. At an October 1, 1998, hearing before the House Banking Committee, Chairperson Born received compliments from some members of the Committee for having raised important issues in the May "concept release." The hearing, however, focused on issues with regulatory oversight of the banks and security firms that had given
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#17328559775071620-458: A joint CFTC and SEC regulated "security futures" system. Title III established a framework for SEC regulation of "security-based swaps". The PWG Report had not addressed this issue. Title IV established a framework for CFTC regulation of "bank products". This included coverage of deposit based "hybrid instruments", but went further. The PWG Report had not dealt with these issues beyond how Title IV overlapped with Title I. The CFMA did not provide
1755-626: A manner similar to the "regulatory relief" ultimately provided for an "exempt board of trade" under the CFMA. In her testimony to the Senate Agriculture Committee and in several subsequent speeches during the first half of 1997, Chairperson Born argued OTC derivatives did not create the same "concentration of financial risk " as exchange-traded futures and did not perform the "unique price discovery" function of exchange traded contracts. She argued these differences justified different regulatory treatment. Chairperson Born's 1997 testimony on
1890-444: A powerful effect of waking up a somewhat dormant Congress which investigated presidential wrongdoing and coverups; the scandal "substantially reshaped" relations between the branches of government, suggested political scientist Bruce J. Schulman . Partisanship returned, particularly after 1994; one analyst attributes partisan infighting to slim congressional majorities which discouraged friendly social gatherings in meeting rooms such as
2025-514: A revised constitution with a two-chamber or bicameral Congress. Smaller states argued for equal representation for each state. The two-chamber structure had functioned well in state governments. A compromise plan, the Connecticut Compromise , was adopted with representatives chosen by population (benefiting larger states) and exactly two senators chosen by state governments (benefiting smaller states). The ratified constitution created
2160-410: A specified currency) and the other paying a floating interest rate amount (or an amount in a different currency). These transactions were similar to "forward delivery" contracts under which "commercial users" of a commodity contracted for future deliveries of that commodity at an agreed upon price. Based on the similarities between swaps and "forward delivery" contracts, the swap market grew rapidly in
2295-566: A state's at-large representation to the federal government by senators. Most incumbents seek re-election, and their historical likelihood of winning subsequent elections exceeds 90 percent. The historical records of the House of Representatives and the Senate are maintained by the Center for Legislative Archives, which is a part of the National Archives and Records Administration . Congress
2430-557: A statement that "the conferees strongly urge" the PWG to study OTC derivatives transactions of hedge funds and others. Although Chairperson Born had explained at the October 1, 1998, House Banking Committee hearing that the CFTC's supervisory authority over the LTCM fund as a " commodity pool operator " was limited to monitoring its exchange trading activities, the CFTC's possession of financial statements for
2565-595: A tie. The House of Representatives has six non-voting members . Congress convenes for a two-year term , commencing every other January. Elections are held every even-numbered year on Election Day . The members of the House of Representatives are elected for the two-year term of a Congress. The Reapportionment Act of 1929 established that there be 435 representatives, and the Uniform Congressional Redistricting Act requires that they be elected from single-member constituencies or districts . It
2700-628: Is a federal act enacted in 1936 by the U.S. Government, with some of its provisions amending the Grain Futures Act of 1922. The Act provides federal regulation of all commodities and futures trading activities and requires all futures and commodity options to be traded on organized exchanges. In 1974, the Commodity Futures Trading Commission (CFTC) was created as a result of the Commodity Exchange Act, and in 1982
2835-497: Is also required that the congressional districts be apportioned among states by population every ten years using the U.S. census results, provided that each state has at least one congressional representative. Each senator is elected at-large in their state for a six-year term, with terms staggered , so every two years approximately one-third of the Senate is up for election. Each state, regardless of population or size, has two senators, so currently, there are 100 senators for
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#17328559775072970-663: Is directly responsible for the governing of the District of Columbia , the current seat of the federal government. The First Continental Congress was a gathering of representatives from twelve of the Thirteen Colonies . On July 4, 1776, the Second Continental Congress adopted the Declaration of Independence , referring to the new nation as the "United States of America". The Articles of Confederation in 1781 created
3105-440: Is elected and gives each House the power to create its own structure. Section Seven lays out the process for creating laws, and Section Eight enumerates numerous powers. Section Nine is a list of powers Congress does not have, and Section Ten enumerates powers of the state, some of which may only be granted by Congress. Constitutional amendments have granted Congress additional powers. Congress also has implied powers derived from
3240-486: Is essentially charged with reconciling our many points of view on the great public policy issues of the day. Congress is constantly changing and is constantly in flux. In recent times, the American South and West have gained House seats according to demographic changes recorded by the census and includes more women and minorities . While power balances among the different parts of government continue to change,
3375-433: Is extraordinarily sensitive to public pressure. Several academics described Congress: Congress reflects us in all our strengths and all our weaknesses. It reflects our regional idiosyncrasies, our ethnic, religious, and racial diversity, our multitude of professions, and our shadings of opinion on everything from the value of war to the war over values. Congress is the government's most representative body ... Congress
3510-529: The tabloidization of media coverage. Others saw pressure to squeeze a political position into a thirty-second soundbite. A report characterized Congress in 2013 as unproductive, gridlocked, and "setting records for futility". In October 2013, with Congress unable to compromise, the government was shut down for several weeks and risked a serious default on debt payments, causing 60% of the public to say they would "fire every member of Congress" including their own representative. One report suggested Congress posed
3645-540: The Board of Education . Congress began reasserting its authority. Lobbying became a big factor despite the 1971 Federal Election Campaign Act . Political action committees or PACs could make substantive donations to congressional candidates via such means as soft money contributions. While soft money funds were not given to specific campaigns for candidates, the money often benefited candidates substantially in an indirect way and helped reelect candidates. Reforms such as
3780-527: The Commerce Clause , the enumerated power to regulate commerce, in rulings such as McCulloch v. Maryland , have effectively widened the scope of Congress's legislative authority far beyond that prescribed in Section Eight. Constitutional responsibility for the oversight of Washington, D.C. , the federal district and national capital, and the U.S. territories of Guam , American Samoa , Puerto Rico ,
3915-569: The Congress of the Confederation , a unicameral body with equal representation among the states in which each state had a veto over most decisions. Congress had executive but not legislative authority, and the federal judiciary was confined to admiralty and lacked authority to collect taxes, regulate commerce, or enforce laws. Government powerlessness led to the Convention of 1787 which proposed
4050-599: The Conservative Coalition . Democrats maintained control of Congress during World War II . Congress struggled with efficiency in the postwar era partly by reducing the number of standing congressional committees. Southern Democrats became a powerful force in many influential committees although political power alternated between Republicans and Democrats during these years. More complex issues required greater specialization and expertise, such as space flight and atomic energy policy. Senator Joseph McCarthy exploited
4185-627: The National Futures Association (NFA) was created by CFTC. United States Congress This is an accepted version of this page Minority (49) Minority (212) Vacant (3) [REDACTED] [REDACTED] The United States Congress is the legislature of the federal government of the United States . It is bicameral , composed of a lower body, the United States House of Representatives , and an upper body,
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4320-513: The Northern Mariana Islands . These six members of Congress enjoy floor privileges to introduce bills and resolutions, and in recent Congresses they vote in permanent and select committees, in party caucuses and in joint conferences with the Senate. They have Capitol Hill offices, staff and two annual appointments to each of the four military academies. While their votes are constitutional when Congress authorizes their House Committee of
4455-576: The United States Senate . It meets in the United States Capitol in Washington, D.C. Members are chosen through direct election , though vacancies in the Senate may be filled by a governor 's appointment. Congress has 535 voting members: 100 senators and 435 representatives. The vice president of the United States , as President of the Senate, has a vote in the Senate only when there is
4590-445: The second-wave feminism movement , when activists moved into electoral politics. Beginning in the 1970s, donors and political action committees like EMILY's List began recruiting, training and funding women candidates. Watershed political moments like the confirmation of Clarence Thomas and the 2016 presidential election created momentum for women candidates, resulting in the Year of
4725-526: The " Close the Enron Loophole Act " was enacted into law to regulate more extensively "energy trading facilities." On August 11, 2009, the Treasury Department sent Congress draft legislation to implement its proposal to amend the CFMA and other laws to provide "comprehensive regulation of all over-the counter derivatives." This proposal was revised in the House and, in that revised form, passed by
4860-429: The "biggest risk to the U.S. economy" because of its brinksmanship , "down-to-the-wire budget and debt crises" and "indiscriminate spending cuts", resulting in slowed economic activity and keeping up to two million people unemployed. There has been increasing public dissatisfaction with Congress, with extremely low approval ratings which dropped to 5% in October 2013. In 2009, Congress authorized another delegate for
4995-499: The "compromise language" by incorporating H.R. 5660 (the "CFMA") into H.R. 4577, which was titled "Consolidated Appropriations Act for FY 2001". The House passed the Conference Report and, therefore, H.R. 4577 in a vote of 292–60. Over "objection" by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN), the Senate passed the Conference Report, and therefore H.R. 4577, by "unanimous consent". The Chairs and Ranking members of each of
5130-670: The "historic agreement" as eliminating "the major obstacles to forming a consensus bill." At the same time, Senator Phil Gramm (R-TX), the Chair of the Senate Banking Committee, was quoted as insisting that any bill brought to the Senate Floor would need to be expanded to include prohibitions on SEC regulation of the swaps market. Democratic members of Congress later described a period in late September through early October during which they were excluded from negotiations over reconciling
5265-451: The "policy statement" be privately negotiated transactions between sophisticated parties covering (or "hedging") risks arising from their business (including investment and financing) activities. The new "swaps exemption" dropped the "hedging" requirement. It continued to require the swap be entered into by "sophisticated parties" (i.e., "eligible swap participants") in private transactions. Although OTC derivatives were subject to criticism in
5400-527: The "professional markets" legislation to disagreements concerning equity derivatives between the Chicago Board of Trade and the OTC derivatives dealers, on the one side, and the Chicago Mercantile Exchange and other futures exchanges, on the other. Second, after the 1998 CFTC "concept release" controversy arose, Long-Term Capital Management (LTCM) became headline news with the near collapse of
5535-439: The 1960s opened the possibility for Black, Asian American, Latina and other non-white women candidates to run for Congress. Racially polarized voting, racial stereotypes and lack of institutional support still prevent women of color from reaching Congress as easily as white people . Senate elections, which require victories in statewide electorates, have been particularly difficult for women of color. Carol Moseley Braun became
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5670-542: The 1974 law change, the CEA continued to require that all "future delivery" contracts in commodities covered by the law be executed on a regulated exchange. This meant any "future delivery" contract entered into by parties off a regulated exchange would be illegal and unenforceable. The term "future delivery" was not defined in the CEA. Its meaning evolved through CFTC actions and court rulings. Not all derivative contracts are "future delivery" contracts. The CEA always excluded "forward delivery" contracts under which, for example,
5805-484: The 1982 Shad-Johnson Accord , which prohibited futures on "non-exempt securities", the FTPA prohibited the CFTC from granting an exemption from that prohibition. This would later lead to concerns about the "legal certainty" of swaps and other OTC derivatives related to "securities." Similar to the existing statutory exclusion for "forward delivery" contracts, the 1989 "policy statement" on swaps had required that swaps covered by
5940-586: The 1990s and bills were introduced in Congress to regulate aspects of the market, the 1993 exemptions remained in place. Bank regulators issued guidelines and requirements for bank OTC derivatives activities that responded to many of the concerns raised by Congress, the General Accounting Office (GAO), and others. Securities firms agreed with the Securities and Exchange Commission (SEC) and CFTC to establish
6075-790: The 2002 Bipartisan Campaign Reform Act limited campaign donations but did not limit soft money contributions. One source suggests post-Watergate laws amended in 1974 meant to reduce the "influence of wealthy contributors and end payoffs" instead "legitimized PACs" since they "enabled individuals to band together in support of candidates". From 1974 to 1984, PACs grew from 608 to 3,803 and donations leaped from $ 12.5 million to $ 120 million along with concern over PAC influence in Congress. In 2009, there were 4,600 business, labor and special-interest PACs including ones for lawyers , electricians , and real estate brokers . From 2007 to 2008, 175 members of Congress received "half or more of their campaign cash" from PACs. From 1970 to 2009,
6210-410: The 50 states. Article One of the U.S. Constitution requires that members of Congress be at least 25 years old for the House and at least 30 years old for the U.S. Senate, be a U.S. citizen for seven years for the House and nine years for the Senate, and be an inhabitant of the state which they represent. Members in both chambers may stand for re-election an unlimited number of times. The Congress
6345-512: The American response as a "police action". According to Time magazine in 1970, "U.S. presidents [had] ordered troops into position or action without a formal congressional declaration a total of 149 times." In 1993, Michael Kinsley wrote that "Congress's war power has become the most flagrantly disregarded provision in the Constitution," and that the "real erosion [of Congress's war power] began after World War II." Disagreement about
6480-461: The CEA to OTC derivatives. By finding (1) the sophisticated parties participating in the OTC derivatives markets did not require CEA protections, (2) the activities of most OTC derivatives dealers were already subject to direct or indirect federal oversight, (3) manipulation of financial markets through financial OTC derivatives had not occurred and was highly unlikely, and (4) the OTC derivatives market performed no significant "price discovery" function,
6615-509: The CEA were required to be traded on regulated exchanges such as the Chicago Board of Trade . The Commodity Futures Trading Commission Act of 1974 created the CFTC as the new regulator of commodity exchanges. It also expanded the scope of the CEA to cover the previously listed agricultural products and "all other goods and articles, except onions, and all services, rights, and interests in which contracts for future delivery are presently or in
6750-514: The CEA's existing preemption of state gambling and other laws that could render a CFTC exempted transaction illegal. It made that preemption applicable to all exempted or excluded transactions. Title I also created a new system under which three different types of exchanges could be established based on the types of commodities and participants on such exchanges. Title II of the CFMA repealed the 1982 Shad-Johnson Accord that had prohibited single stock and narrow stock index futures and replaced that with
6885-399: The CEA. The CFTC also issued a "concept release" requesting comments on whether the OTC derivatives market was properly regulated under the existing CEA exemptions and on whether market developments required regulatory changes. The CFTC's actions were widely viewed as a response to the SEC's Broker-Dealer Lite proposal and, at least by Professor John C. Coffee , as perhaps an attempt to force
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#17328559775077020-585: The CEA. The CFTC issued the forward transactions "statutory interpretation" in response to a court ruling that a "Brent" (i.e., North Sea) oil "forward delivery" contract was, in fact, a "future delivery" contract, which could cause it to be illegal and unenforceable under the CEA. This, along with a court ruling in the United Kingdom that swaps entered into by a local UK government unit were illegal, elevated concerns with "legal certainty." Second, in response to this concern about "legal certainty", Congress (through
7155-424: The CFMA was enacted into law two months later. After the House passed H.R. 4541, press reports indicated Sen. Gramm was blocking Senate action based on his continued insistence that the bill be expanded to prevent the SEC from regulating swaps, and the desire to broaden the protections against CFTC regulation for "bank products". Nevertheless, with Congress adjourned for the 2000 elections, but scheduled to return for
7290-468: The CFMA's treatment of those instruments has become controversial. Title I of the CFMA broadly excludes from the CEA financial derivatives, including specifically any index or measure tied to a "credit risk or measure". In 2000, Title I's exclusion of financial derivatives from the CEA was not controversial in Congress. Instead, it was widely hailed for bringing "legal certainty" to this "important market" permitting "the United States to retain its leadership in
7425-605: The CFMA, federal banking regulators imposed capital and other requirements on banks that entered into OTC derivatives . The U.S. Securities and Exchange Commission (SEC) and CFTC had limited "risk assessment" authority over OTC derivatives dealers affiliated with securities or commodities brokers and also jointly administered a voluntary program under which the largest securities and commodities firms reported additional information about derivative activities, management controls, risk and capital management, and counterparty exposure policies that were similar to, but more limited than,
7560-674: The CFTC or SEC the broader "risk assessment" authority over affiliates of futures commission merchants or broker-dealers that the PWG Report had recommended. H.R. 4541 was introduced in the House of Representatives on May 25, 2000, as the Commodities Futures Modernization Act of 2000. Three separate House Committees held hearings on the bill. Each Committee reported out a different amended version of H.R. 4541 by September 6, 2000. Another Commodity Futures Modernization Act of 2000
7695-409: The CFTC to grant broad "deregulation" of existing exchange trading to reflect differences in (A) the susceptibility of commodities to price manipulation and (B) the "sophistication" and financial strength of the parties permitted to trade on the exchange; and (7) permission for single stock and narrow index stock futures on terms to be agreed between the CFTC and SEC. In 1998 the CFTC had disagreed with
7830-401: The Congress has started and ended at noon on the third day of January of every odd-numbered year. Members of the Senate are referred to as senators; members of the House of Representatives are referred to as representatives, congressmen, or congresswomen. Scholar and representative Lee H. Hamilton asserted that the "historic mission of Congress has been to maintain freedom" and insisted it was
7965-458: The Constitution's Necessary and Proper Clause . Congress has authority over financial and budgetary policy through the enumerated power to "lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States". There is vast authority over budgets, although analyst Eric Patashnik suggested that much of Congress's power to manage
8100-533: The FTPA had preempted those state laws for financial derivatives covered by the CFTC's "swaps exemption." As described in Section 1.1.2 above, however, a "gap" in the CFTC's powers prohibited it from exempting futures on "non-exempt securities". This "loophole" (which was intended to preserve the Shad-Johnson Accord's prohibition on single stock futures) meant that, before the CFMA, the CEA's preemption of state gaming and "bucket shop" laws would not have protected
8235-609: The Futures Trading Practices Act of 1992 (FTPA)) gave the CFTC authority to exempt transactions from the exchange trading requirement and other provisions of the CEA. The CFTC used that authority (as Congress contemplated or "instructed") to exempt the same three categories of transactions for which it had previously issued policy statements or statutory interpretations. The FTPA also provided that such CFTC exemptions preempted any state law that would otherwise make such transactions illegal as gambling or otherwise. To preserve
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#17328559775078370-594: The Government of the United States, or in any Department or Officer thereof". Article Four gives Congress the power to admit new states into the Union. One of Congress's foremost non-legislative functions is the power to investigate and oversee the executive branch. Congressional oversight is usually delegated to committees and is facilitated by Congress's subpoena power. Some critics have charged that Congress has in some instances failed to do an adequate job of overseeing
8505-536: The House expanded delegates, along with their powers and privileges representing U.S. citizens in non-state areas, beginning with representation on committees for Puerto Rico's resident commissioner in 1970. In 1971, a delegate for the District of Columbia was authorized, and in 1972 new delegate positions were established for U.S. Virgin Islands and Guam . In 1978, an additional delegate for American Samoa were added. In
8640-477: The House of Representatives have equal legislative authority, although only the House may originate revenue and appropriation bills . Congress has an important role in national defense , including the exclusive power to declare war, to raise and maintain the armed forces , and to make rules for the military. Some critics charge that the executive branch has usurped Congress's constitutionally defined task of declaring war. While historically presidents initiated
8775-457: The House on December 11, 2009, as part of H.R. 4173 ( Dodd–Frank Wall Street Reform and Consumer Protection Act ). Separate, but similar, proposed legislation was introduced in the Senate and is still awaiting Senate action at the time of the House action. The PWG Report was directed at ending controversy over how swaps and other OTC derivatives related to the CEA. A derivative is a financial contract or instrument that "derives" its value from
8910-598: The Jeffersonian Republican Party and began the era of the First Party System . In 1800, Thomas Jefferson 's election to the presidency marked a peaceful transition of power between the parties. John Marshall , 4th chief justice of the Supreme Court , empowered the courts by establishing the principle of judicial review in law in the landmark case Marbury v. Madison in 1803, effectively giving
9045-435: The LTCM fund high leverage through both loans and OTC derivative transactions. The 1999 GAO Report that analyzed the LTCM experience criticized federal regulators for not coordinating their oversight of LTCM's activities with banks and securities firms. The Report also recommended "consideration of" legislation to grant the SEC and CFTC consolidated supervision authority for securities and commodities firms in order to supervise
9180-465: The OTC derivatives activities of those consolidated entities in a manner similar to the Federal Reserve's authority over bank holding companies. The GAO Report did not consider, and did not recommend, CFTC regulation of OTC derivatives. An effect of the LTCM experience was that the conference committee report adopting the six-month moratorium on CFTC action affecting OTC derivative regulation included
9315-456: The OTC derivatives market and the regulated exchange-traded futures market. Price information could be broadly disseminated through "electronic trading facilities." The PWG Report also emphasized the desire to "maintain U.S. leadership in these rapidly developing markets" by discouraging the movement of such transactions "offshore". In the 1998 Congressional hearings concerning the CFTC "concept release" Representative James A. Leach (R-IA) had tied
9450-485: The OTC derivatives market had made that market more similar to futures markets. Congress passed a law preventing the CFTC from changing its treatment of OTC derivatives through March 1999. CFTC Chair Born lost control of the issue at the CFTC when three of her four fellow Commissioners announced they supported the legislation and would temporarily not vote to take any action concerning OTC derivatives. CFTC Chair Born resigned effective June 1999. Her successor, William Rainer,
9585-408: The PWG concluded "there is no compelling evidence of problems involving bilateral swap agreements that would warrant regulation under the CEA." By essentially adopting the views of the other members of the PWG concerning the scope and application of the CEA, the CFTC permitted a "remarkable" agreement "on a redrawing of the regulatory lines." The PWG Report encouraged the growth in similarities between
9720-492: The SEC to withdraw the proposal. The CFTC expressed dismay over the Broker-Dealer Lite proposal and the manner in which it was issued, but also noted it was 18 months into a "comprehensive regulatory reform effort." The same day the CFTC issued its "concept release" Treasury Secretary Robert Rubin , Federal Reserve Board Chair Alan Greenspan , and SEC Chair Arthur Levitt (who, along with CFTC Chair Brooksley Born , were
9855-561: The Senate decides impeachment cases. A two-thirds vote of the Senate is required before an impeached person can be removed from office. The term Congress can also refer to a particular meeting of the legislature. A Congress covers two years; the current one, the 118th Congress , began on January 3, 2023, and will end on January 3, 2025. Since the adoption of the Twentieth Amendment to the United States Constitution ,
9990-628: The Supreme Court a power to nullify congressional legislation. The Civil War , which lasted from 1861 to 1865, which resolved the slavery issue and unified the nation under federal authority but weakened the power of states' rights . The Gilded Age (1877–1901) was marked by Republican dominance of Congress. During this time, lobbying activity became more intense, particularly during the administration of President Ulysses S. Grant in which influential lobbies advocated for railroad subsidies and tariffs on wool. Immigration and high birth rates swelled
10125-421: The Treasury Department announced agreement had been reached the night before and urged Congress to enact into law the agreed upon language. The "compromise language" was introduced in the House on December 14, 2000, as H.R. 5660. The same language was introduced in the Senate on December 15, 2000 as S. 3283. The Senate and House conference that was called to reconcile differences in H.R. 4577 appropriations adopted
10260-422: The United States during the 1980s. Nevertheless, as a 2006 Congressional Research Service report explained in describing the status of OTC derivatives in the 1980s: "if a court had ruled that a swap was in fact an illegal, off-exchange futures contract, trillions of dollars in outstanding swaps could have been invalidated. This might have caused chaos in financial markets, as swaps users would suddenly be exposed to
10395-538: The White House a little more in favor of the executive branch", according to one account. Past presidents, including Ronald Reagan , George H. W. Bush , Bill Clinton , and George W. Bush , have made public statements when signing congressional legislation about how they understand a bill or plan to execute it, and commentators, including the American Bar Association , have described this practice as against
10530-500: The Whole votes, recent Congresses have not allowed for that, and they cannot vote when the House is meeting as the House of Representatives. On January 6, 2021, the Congress gathered to confirm the election of Joe Biden, when supporters of the outgoing president Donald Trump attacked the building . The session of Congress ended prematurely, and Congress representatives evacuated. Trump supporters occupied Congress until D.C police evacuated
10665-540: The Woman and the election of members of The Squad , respectively. Women of color faced additional challenges that made their ascension to Congress even more difficult. Jim Crow laws , voter suppression and other forms of structural racism made it virtually impossible for women of color to reach Congress prior to 1965. The passage of the Voting Rights Act that year , and the elimination of race-based immigration laws in
10800-552: The activities through London -based affiliates. The CFMA continued an existing 1992 preemption of state laws enacted in the Futures Trading Practices Act of 1992 which prevented the law from treating eligible OTC derivatives transactions as gambling or otherwise illegal. It also extended that preemption to security-based derivatives that had previously been excluded from the CEA and its preemption of state law. The CFMA, as enacted by President Clinton , went beyond
10935-525: The agreement of the other members of the PWG; (4) continuation of the preemption of state laws that might otherwise make any "excluded" or "exempted" transactions illegal as gambling or otherwise; (5) as previously recommended by the PWG in its report on hedge funds, the expansion of SEC and CFTC "risk assessment" oversight of affiliates of securities firms and commodity firms engaged in OTC derivatives activities to ensure they did not endanger affiliated broker-dealers or futures commission merchants; (6) encouraging
11070-639: The area. The event was the first time since the Burning of Washington by the British during the War of 1812 that the United States Congress was forcefully occupied. Various social and structural barriers have prevented women from gaining seats in Congress. In the early 20th century, women's domestic roles and the inability to vote forestalled opportunities to run for and hold public office. The two party system and
11205-453: The bills because of the election year's short Congressional schedule. Sponsors had delayed introduction of the bills as they vainly awaited agreement between the CFTC and SEC on how to regulate the single stock futures contemplated by the PWG Report. That issue dominated the hearings. On September 14, 2000, the SEC and CFTC announced they had agreed on a joint regulation approach for "security futures." Senior Treasury Department officials hailed
11340-417: The budget has been lost when the welfare state expanded since "entitlements were institutionally detached from Congress's ordinary legislative routine and rhythm." Another factor leading to less control over the budget was a Keynesian belief that balanced budgets were unnecessary. The Sixteenth Amendment in 1913 extended congressional power of taxation to include income taxes without apportionment among
11475-416: The case of the latter, the lack of affiliation with a political party does not mean that such members are unable to caucus with members of the political parties. Members can also switch parties at any time, although this is quite uncommon. Article One of the United States Constitution states, "All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of
11610-455: The control of the CFTC, although it had recommended the continuation of those regulatory exemptions. Title I also resolved the issue of "hybrid instruments" by defining when such an instrument would be considered a "security" subject to security laws and excluded from the CEA even though it had a "commodity component". Equivalent treatment of bank products was provided in Title IV. Title I retained
11745-423: The controversy to "systemic risk" by arguing the movement of transactions to jurisdictions outside the United States would replace U.S. regulation with laxer foreign supervision. It can be argued that the PWG Report recommendations and the CFMA as enacted did not change the "regulation" of OTC derivatives because there was no existing regulation under the CEA or securities laws. The change to the CEA, however, would be
11880-405: The difference between exchange and OTC markets was consistent with her first speech as CFTC Chair on October 24, 1996, in which she stated her belief that regulation of the OTC derivatives market should be limited to fraud and manipulation. While her 1997 testimony opposed the Senate bill's provision to codify in law the existing CFTC regulatory exemptions for OTC derivatives, she also stated the CFTC
12015-586: The early years as political parties became pronounced. With the passage of the Constitution and the Bill of Rights , the anti-federalist movement was exhausted. Some activists joined the Anti-Administration Party that James Madison and Thomas Jefferson were forming about 1790–1791 to oppose policies of Treasury Secretary Alexander Hamilton ; it soon became the Democratic-Republican Party or
12150-475: The electorate. Lame duck reforms according to the Twentieth Amendment reduced the power of defeated and retiring members of Congress to wield influence despite their lack of accountability. The Great Depression ushered in President Franklin Roosevelt and strong control by Democrats and historic New Deal policies. Roosevelt 's election in 1932 marked a shift in government power towards
12285-484: The elimination of existing criteria for distinguishing OTC derivatives from "futures". Title I of the CFMA adopted recommendations of the PWG Report by broadly excluding from the CEA transactions in financial derivatives (i.e. "excluded commodities") between "eligible contract participants." The definition of "eligible contract participant" covered the same types of "sophisticated" parties as the existing "swaps exemption" in its definition of "eligible swap participants", but
12420-470: The entire PWG should study the OTC derivatives market and the issues raised in the CFTC's "concept release." The PWG Report recommended: (1) the codification into the CEA, as an "exclusion", of existing regulatory exemptions for OTC financial derivatives, revised to permit electronic trading between "eligible swaps participants" (acting as "principals") and to even allow standardized (i.e. "fungible") contracts subject to "regulated" clearing; (2) continuation of
12555-425: The exclusive power of removal , allowing impeachment and removal of the president, federal judges and other federal officers. There have been charges that presidents acting under the doctrine of the unitary executive have assumed important legislative and budgetary powers that should belong to Congress. So-called signing statements are one way in which a president can "tip the balance of power between Congress and
12690-577: The executive branch. Numerous New Deal initiatives came from the White House rather initiated by Congress. President Roosevelt pushed his agenda in Congress by detailing Executive Branch staff to friendly Senate committees (a practice that ended with the Legislative Reorganization Act of 1946). The Democratic Party controlled both houses of Congress for many years. During this time, Republicans and conservative southern Democrats formed
12825-399: The existing CFTC authority to exempt other non-agricultural commodities (such as energy products) from provisions of the CEA; (3) continuation of existing exemptions for "hybrid instruments" expanded to cover the Shad-Johnson Accord (thereby exempting from the CEA any hybrid that could be viewed as a future on a "non-exempt security"), and a prohibition on the CFTC changing the exemption without
12960-463: The extent of congressional versus presidential power regarding war has been present periodically throughout the nation's history. Congress can establish post offices and post roads, issue patents and copyrights , fix standards of weights and measures, establish Courts inferior to the Supreme Court , and "make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in
13095-551: The fear of communism during the Second Red Scare and conducted televised hearings. In 1960, Democratic candidate John F. Kennedy narrowly won the presidency and power shifted again to the Democrats who dominated both chambers of Congress from 1961 to 1980, and retained a consistent majority in the House from 1955 to 1994. Congress enacted Johnson's Great Society program to fight poverty and hunger. The Watergate Scandal had
13230-465: The financial markets", as recommended by the PWG Report. The CFMA's treatment of credit default swaps has received the most attention for two issues. First, former New York Insurance Superintendent Eric Dinallo has argued credit default swaps should have been regulated as insurance and that the CFMA removed a valuable legal tool by preempting state " bucket shop " and gaming laws that could have been used to attack credit default swaps as illegal. In 1992,
13365-412: The first woman of color to reach the Senate in 1993. The second, Mazie Hirono , won in 2013. In 2021, Kamala Harris became the first female President of the Senate , which came with her role as the first female Vice President of the United States . Article One of the Constitution creates and sets forth the structure and most of the powers of Congress. Sections One through Six describe how Congress
13500-482: The five Congressional Committees that considered H.R. 4541 or S. 2697 supported, or entered into the Congressional Record statements in support of, the CFMA. The PWG issued letters expressing the unanimous support of each of its four members for the CFMA. H.R. 4577, including H.R. 5660, was signed into law, as CFMA, on December 21, 2000. With the 2008 emergence of widespread concerns about credit default swaps ,
13635-595: The fund received negative news coverage in November 1998 based on the fact the CFTC was the only federal regulator to receive such reports directly from LTCM and had not shared the information with other members of the PWG. When the LTCM matter was investigated at a December 16, 1998, Senate Agriculture Committee hearing, the three CFTC Commissioners that had supported the Congressional moratorium, as described in Section 1.2.1 above, reiterated their support and their position that
13770-424: The future dealt in." Existing non-exchange traded financial "commodity" derivatives markets (mostly " interbank " markets) in foreign currencies, government securities, and other specified instruments were excluded from the CEA through the " Treasury Amendment ", to the extent transactions in such markets remained off a "board of trade." The expanded CEA, however, did not generally exclude financial derivatives. After
13905-402: The internal structure of Congress is important to understand along with its interactions with so-called intermediary institutions such as political parties , civic associations , interest groups , and the mass media . The Congress of the United States serves two distinct purposes that overlap: local representation to the federal government of a congressional district by representatives and
14040-486: The lack of term limits favored incumbent white men, making the widow's succession – in which a woman temporarily took over a seat vacated by the death of her husband – the most common path to Congress for white women. Women candidates began making substantial inroads in the later 20th century, due in part to new political support mechanisms and public awareness of their underrepresentation in Congress. Recruitment and financial support for women candidates were rare until
14175-430: The late 20th century, the media became more important in Congress's work. Analyst Michael Schudson suggested that greater publicity undermined the power of political parties and caused "more roads to open up in Congress for individual representatives to influence decisions". Norman Ornstein suggested that media prominence led to a greater emphasis on the negative and sensational side of Congress, and referred to this as
14310-488: The law. Generally militia forces are controlled by state governments, not Congress. Congress also has implied powers deriving from the Constitution's Necessary and Proper Clause which permit Congress to "make all laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof". Broad interpretations of this clause and of
14445-441: The legislature since there were two separate chambers. The new government became active in 1789. Political scientist Julian E. Zelizer suggested there were four main congressional eras, with considerable overlap, and included the formative era (1780s–1820s), the partisan era (1830s–1900s), the committee era (1910s–1960s), and the contemporary era (1970–present). Federalists and anti-federalists jostled for power in
14580-584: The market. Bank regulators and the SEC already monitored and regulated bank and broker-dealer OTC Derivatives activities. The dissenting PWG members explained that any effort to regulate those activities through the CEA would only lead to the activities moving outside the United States. In the 1980s banks had used offshore branches to book transactions potentially covered by the CEA. Securities firms were still using London and other foreign offices to book at least securities related derivatives transactions. Any change in regulation of OTC derivatives should only occur after
14715-513: The members of the PWG) issued a letter asking Congress to prevent the CFTC from changing its existing treatment of OTC derivatives. They argued that, by calling into question whether swaps and other OTC derivatives were "futures", the CFTC was calling into question the legality of security related OTC derivatives for which the CFTC could not grant exemptions (as described in Section 1.1.2 above) and, more broadly, undermining an "implicit agreement" not to raise
14850-507: The most significant features of the CFMA was that it removed the regulatory oversight of over-the-counter (OTC) derivatives, such as credit default swaps (CDS). Prior to this, derivatives had been subject to varying degrees of regulation. The CFMA clarified that these contracts were exempt from oversight by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). Before and after
14985-580: The other branches of government. In the Plame affair , critics including Representative Henry A. Waxman charged that Congress was not doing an adequate job of oversight in this case. There have been concerns about congressional oversight of executive actions such as warrantless wiretapping , although others respond that Congress did investigate the legality of presidential decisions. Political scientists Ornstein and Mann suggested that oversight functions do not help members of Congress win reelection. Congress also has
15120-579: The other members of the PWG about the scope and purposes of the CEA. Whereas the CFTC saw broad purposes in protecting "fair access" to markets, "financial integrity", "price discovery and transparency", "fitness standards," and protection of "market participants from fraud and other abuses," other members of the PWG (particularly the Federal Reserve through Alan Greenspan) found the more limited purposes of (1) preventing price manipulation and (2) protecting retail investors. The PWG Report ended that disagreement by analyzing only four issues in deciding not to apply
15255-532: The over-the-counter derivative markets", by 2001 the collapse of Enron brought public attention to the CFMA's treatment of energy derivatives in the " Enron Loophole ". Following the Federal Reserve 's emergency loans to "rescue" American International Group (AIG) in September 2008, the CFMA has received even more widespread criticism for its treatment of credit default swaps and other OTC derivatives. In 2008
15390-480: The price or other characteristic of an underlying "thing" (or "commodity"). A farmer might enter into a "derivative contract" under which the farmer would sell from next summer's harvest a specified number of bushels of wheat at a specified price per bushel. If this contract were executed on a commodity exchange, it would be a " futures contract ". Before 1974, the CEA only applied to agricultural commodities. "Future delivery" contracts in agricultural commodities listed in
15525-591: The process for going to war, they asked for and received formal war declarations from Congress for the War of 1812 , the Mexican–American War , the Spanish–American War , World War I , and World War II , although President Theodore Roosevelt 's military move into Panama in 1903 did not get congressional approval. In the early days after the North Korean invasion of 1950 , President Truman described
15660-446: The question of the CEA's coverage of swaps and other established OTC derivatives. In the ensuing Congressional hearings, the three members of the PWG dissenting from the CFTC's "unilateral" actions argued the CFTC was not the proper body, and the CEA was not the proper statute, to regulate OTC derivatives activities. Banks and securities firms dominated the OTC derivatives market. Their regulators needed to be involved in any regulation of
15795-703: The ranks of citizens and the nation grew at a rapid pace. The Progressive Era was characterized by strong party leadership in both houses of Congress and calls for reform; sometimes reformers said lobbyists corrupted politics. The position of Speaker of the House became extremely powerful under leaders such as Thomas Reed in 1890 and Joseph Gurney Cannon . By the beginning of the 20th century, party structures and leadership emerged as key organizers of Senate proceedings. A system of seniority, in which long-time members of Congress gained more and more power, encouraged politicians of both parties to seek long terms. Committee chairmen remained influential in both houses until
15930-510: The recommendations of a Presidential Working Group on Financial Markets (PWG) report titled "Over-the Counter Derivatives and the Commodity Exchange Act" (the " PWG Report "). President's Working Group on Financial Markets, November 1999: Although hailed by the PWG on the day of congressional passage as "important legislation" to allow "the United States to maintain its competitive position in
16065-495: The reforms of the 1970s. Important structural changes included the direct popular election of senators according to the Seventeenth Amendment , ratified on April 8, 1913. Supreme Court decisions based on the Constitution's commerce clause expanded congressional power to regulate the economy. One effect of popular election of senators was to reduce the difference between the House and Senate in terms of their link to
16200-540: The regulatory oversight applicable to futures. The only exception was that the transactions would be subject to the rules for the new "Derivative Clearing Organizations" authorized by the CFMA, if the transaction used such a clearing facility. The CFMA did not require that standardized transaction use a clearing facility. It only authorized their existence, subject to regulatory oversight. The PWG Report had recommended permitting "standardized" contracts, so long as they were subject to regulated clearing. Title I's extended most of
16335-428: The requirements for banks. Banks and securities firms were the dominant dealers in the market, with commercial bank dealers holding by far the largest share. To the extent insurance company affiliates acted as dealers of OTC derivatives rather than as counterparties to transactions with banks or security firm affiliates, they had no such federal "safety and soundness" regulation of those activities and typically conducted
16470-454: The risks they had used derivatives to avoid." To eliminate this risk, the CFTC and the Congress acted to give "legal certainty" to swaps and, more generally, to the OTC derivatives market activities of "sophisticated parties." First, the CFTC issued "policy statements" and "statutory interpretations" that swaps, "hybrid instruments" (i.e., securities or deposits with a derivative component), and certain "forward transactions" were not covered by
16605-400: The same exclusions to non-financial commodities that were not agricultural. These "exempt commodities" were, in practice, mostly energy and metal commodities. As discussed in Section 4, these transactions were subject to the "anti-fraud" and "anti-manipulation" provisions of the CEA in some, but not all, circumstances. The PWG Report had recommended that exemptions for such transactions remain in
16740-413: The several States, and without regard to any census or enumeration. The Constitution also grants Congress the exclusive power to appropriate funds, and this power of the purse is one of Congress's primary checks on the executive branch. Congress can borrow money on the credit of the United States, regulate commerce with foreign nations and among the states, and coin money. Generally, the Senate and
16875-731: The spirit of the Constitution. There have been concerns that presidential authority to cope with financial crises is eclipsing the power of Congress. In 2008, George F. Will called the Capitol building a "tomb for the antiquated idea that the legislative branch matters". The Constitution enumerates the powers of Congress in detail. In addition, other congressional powers have been granted, or confirmed, by constitutional amendments. The Thirteenth (1865), Fourteenth (1868), and Fifteenth Amendments (1870) gave Congress authority to enact legislation to enforce rights of African Americans, including voting rights , due process , and equal protection under
17010-418: The sponsor of S. 2697, was reported to be considering forcing H.R. 4541 to the Senate Floor against Senator Gramm's objections. After Congress returned into session on December 4, 2000, there were reports Senator Gramm and the Treasury Department were exchanging proposed language to deal with the issues raised by Sen. Gramm, followed by a report those negotiations had reached an impasse. On December 14, however,
17145-500: The subsequent 2008–2012 global recession . The Commodity Futures Modernization Act (CFMA) of 2000 is a landmark piece of legislation in the United States that significantly altered the regulation of financial markets . Signed into law on December 21, 2000, the CFMA had several major impacts on the trading of derivatives, futures , and other financial instruments. Key Provisions:Deregulation of Over-the-Counter (OTC) Derivatives: One of
17280-437: The three committee versions of H.R. 4541, followed by involvement in reaching an acceptable compromise that left some Republicans unhappy with the final version of the bill and some Democrats upset over the "process", particularly the involvement of Sen. Gramm and House Republican leadership in the negotiations. Despite indications no agreement would be reached, on October 19, 2000, the White House announced its "strong support" for
17415-565: The version of H.R. 4541 scheduled to reach the House Floor that day. The House approved H.R. 4541 in a 377–4 vote. As so passed by the House, H.R. 4541 contained, in Title I, the language concerning OTC derivatives that became the source for Title I of the CFMA and, in Title II, the language regulating "security futures" that became the source for Title II of the CFMA. Titles III and IV would be added when
17550-402: Was "watching" the OTC derivatives market with the PWG and had no plans to modify the existing CFTC exemptions for that market. The futures exchanges argued they needed permission to operate "professional markets" free of "regulatory burdens" in order to compete with foreign exchanges and the OTC derivatives market that catered to the same professionals. 1997 news reports attributed the failure of
17685-488: Was CFTC Chair when the PWG Report was issued in November 1999. While the dispute between the SEC and CFTC over OTC derivatives jurisdiction was at the core of pre-2008 narrations of the events leading to the CFMA, two other noteworthy background events occurred. First, in early 1997 CFTC Chairperson Born testified forcefully to Congress against a Senate bill that would have authorized futures exchanges to establish "professional markets" exempt from many regulatory requirements in
17820-412: Was an important issue in the events that led to the PWG Report. The PWG Report recommended eliminating that uncertainty by excluding credit default swaps and all security-based swaps from the CEA and by adding to the "hybrid instrument" exemption an exclusion from the Shad-Johnson Accord. Commodity Exchange Act Commodity Exchange Act (ch. 545, 49 Stat. 1491 , enacted June 15, 1936)
17955-443: Was broader, particularly by adding permission for individuals with assets of $ 5 million rather than $ 10 million, if the transaction related to managing asset or liability "risk". The PWG had recommended "considering" an increase in this threshold to $ 25 million, not a reduction for actual hedging. Such "eligible contract participants" could enter into transactions on or off "electronic trading facilities" without being subject to any of
18090-535: Was created by the U.S. Constitution and first met in 1789, replacing the Congress of the Confederation in its legislative function. Although not legally mandated, in practice since the 19th century, members of Congress are typically affiliated with one of the two major parties , the Democratic Party or the Republican Party , and only rarely with a third party or independents affiliated with no party. In
18225-459: Was introduced in the Senate on June 8, 2000, as S. 2697. A joint hearing of the Senate Agriculture and Banking Committees was held to consider that bill. The Senate Agriculture Committee reported out an amended version of S. 2697 on August 25, 2000. During the House and Senate committee hearings on these bills, Committee Chairs and Ranking Members described a tight legislative schedule for
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