The CFTC: A Commission Without Commissioners

What happens when a commission is without commissioners? That’s the question facing the Commodity Futures Trading Commission (CFTC), the independent federal agency charged with the oversight of conventional derivatives (futures and options), and since Dodd-Frank the vast majority of the swaps market.

Earlier this week, Sharon Bowen, a Commissioner since 2014 and whose term isn’t due to expire until June 2019, announced that she will resign her position. Like the Federal Energy Regulatory Commission, CFTC currently only has only two commissioners. The rationale of her resignation defines the problem: Commissioner Bowen claims that only have two commissioners “makes routine business difficult, but makes important policy decisions almost impossible” and “[w]ithout a full complement of commissioners to consider the far-reaching implications of our decisions, we are frozen in place while the markets we regulate are moving faster every day.” By leaving early, Commissioner Bowen hopes to “inspire the key decision-makers to confirm four nominees as soon as possible.” But what if it doesn’t? The CFTC hasn’t had a full commission since 2014, and as the backlog of senate confirmations grows, President Trump’s picks for commissioners face a lengthy battle.

The Commodity Exchange Act (CEA) calls for a five commission body, with no more than three of the members from the same political party. Although the CEA states that “a vacancy in the [CFTC] shall not impair the right of the remaining Commissioners to exercise all the powers of the [CFTC],” it does not address a situation where there is more than one vacancy, and surprisingly, any quorum requirements. More troubling is the CFTC’s approach to the problem, indicating that the CFTC can operate with only one commissioner due to the vacancy clause in the CEA. While many cases have addressed quorum issues, concluding that in the absence of expressed authority, common law quorum rules apply, without a quorum directive, does that common law rule exist under the CEA? This is just one questions of many, and proceeding with business as usual with one commissioner representing only one party could lead to a legal challenge, with adverse results crippling the agency until the backlog of appointees is eliminated.

About Kennyhertz Perry’s Commodities, Futures, and Derivatives Practice Group

Kennyhertz Perry advises clients on a wide range of commodities and derivatives regulatory matters.  Kennyhertz Perry has experience in all types of derivative transactions and design structures to meet clients’ specific trading, financial and/or credit needs.  The roots of the practice are in the commodities markets, where Kennyhertz Perry partner Braden Perry was a Senior Trial Attorney in the Division of Enforcement of Commodity Futures Trading Commission.  Our lawyers regularly advise our clients on compliance with the complex laws and regulations governing the securities and derivatives industries, including the Commodity Futures Modernization Act of 2000, the Commodity Exchange Act, the Gramm-Leach-Bliley Act, the Securities Acts of 1933 and 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the SEC and CFTC regulations, the rules of the various derivatives exchanges and clearinghouses and other industry self-regulatory organizations and the “Blue Sky” state securities laws. Keeping abreast of regulatory developments is imperative, and enables our lawyers to guide clients on comment-making about proposed legislation and regulation, provide ongoing operational and compliance counseling, and offer advice on appropriate modifications of transaction structure and documentation.

Clients also benefit from Kennyhertz Perry’s experience in related areas of law, such as litigation, banking, securities, insurance, and its regular practice before the Commodity Futures Trading Commission. Leaders in the financial industry choose Kennyhertz Perry because the firm’s lawyers tailor their advice to the unique issues presented by each matter they handle.

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