Wall Street Reform Bill Signed Today Will Limit Excessive Speculation in Agriculture
New rules to curb Wall Street’s influence over food and farming
MINNEAPOLIS, Minn. - The Wall Street reform bill
signed today by President Obama will severely restrict excessive
speculation on
agriculture commodity futures markets that has harmed U.S. farmers and
countries battling hunger, according to the Institute for Agriculture
and Trade
Policy (IATP).
"This landmark bill is a first step toward
preventing
the excessive speculation by big Wall Street banks that has created
enormous
price volatility in agriculture and energy markets," said IATP
commodities expert Steve Suppan. "This is an important win for farmers
and rural communities - whose economic futures are so tightly linked to
agriculture and energy."
The bill requires the Commodity Futures Trading
Commission
(CFTC) to set per commodity limits across all markets on the number of
derivatives contracts that can be controlled by any one entity and its
affiliates during a trading contract period. Previously, Wall Street
firms and
others took advantage of the "Enron loophole" and other regulatory
exemptions to purchase and then sell off derivative contracts for
agriculture
and energy without limits - driving prices up and down.
Just as importantly, the bill requires that most
derivatives
presently traded "Over the Counter," i.e. in private deals not
subject to CFTC rules and reporting requirements, be traded on public
and
regulated exchanges. The legislation also strengthens enforcement
standards and
prosecutorial resources for initiating fraud and market manipulation
investigations.
"This bill will help markets work for agriculture
and
all Americans, not just for Wall Street and the transnational
corporations that
hide their deals in private markets," said Suppan. "With a
return to a more transparent price setting process on public and
regulated
exchanges, farmers and ranchers again will be able to sell their
products in
advance to generate the cash flows they require for planting, livestock
purchases and other farm management expenses."
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Greater transparency and tougher position limits in
the U.S.
will also benefit many developing countries. Countries dependent on
agriculture
imports for their own food security will be able to forward contract at
fairer
and more predictable prices. Developing countries that rely on
agricultural
exports will similarly benefit from greater price predictability and
stability
as they forward contract sales.
The bill also requires a study of proposed
mandatory trading
of carbon emissions credits under CFTC authority to induce investments
to meet
greenhouse gas emission targets. The study will estimate the price
volatility
and trading volume affects of carbon trading under proposed climate
change
legislation. Last year, IATP
reported on the risks of excessive speculation on proposed
carbon
markets.
"The next critical phase of Wall Street reform
comes
in the regulatory implementation of this bill," said Suppan. "Wall
Street lobbyists and industry associations fought hard to maintain their
insider privileges - this opposition will be at least as vigorous in the
rule-making process."
IATP will continue to work alongside the Commodity
Markets
Oversight Reform Coalition, Americans for Financial Reform and other
allies to
ensure effective implementation and enforcement. The implementation
process
with regards to agriculture will begin at an Agricultural Markets
Advisory
Committee meeting at the CFTC on August 5.
In 2008, IATP
first reported on the role of big financial firms in
contributing to
steep food price increases. This dramatic price volatility not only
affected
U.S. agriculture, but ultimately contributed to increased hunger in many
of the
two-thirds of developing countries that are food-import dependent and
that rely
on U.S. markets for predictable purchase prices.
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