Remarks of Commissioner James E. Newsome before the Mississippi Agricultural Economics Association, Luncheon Keynote Address, Mississippi State University
June 24, 1999
Good afternoon. I would like to begin by recognizing and thanking a couple of people. Marty Fuller, thank you for the invitation and the opportunity to be here with this group today. Also, I would like to thank the Mississippi Agricultural and Forestry Experiment Station and Dr. Vance Watson for hosting me last night.
It is always good to be back in Mississippi, particularly here at Mississippi State University (MSU). In addition, I definitely feel at home at this conference of agricultural economists. As many of you already know, after I received a Food and Resource Economics degree from the University of Florida, I came here to MSU for my graduate work. While not my major, I did earn a minor in Agricultural Economics under the supervision of Dr. David Laughlin. Upon completion of my graduate studies, I spent several years as an Animal Science instructor here at MSU. During my years with the Mississippi Cattlemen’s Association, I worked very closely with Charlie Forrest, Randy Little, and several others in the department. As a result, I am very familiar with both the area and the people here.
While I have seen several of you since I was confirmed as a Commissioner on the Commodity Futures Trading Commission (CFTC) in August of last year, I have not had the opportunity to visit with all of you. I hope that this will soon change.
I have to confess that I did not grow up dreaming to be a CFTC commissioner and I did not seek the position. In fact, it was Senator Cochran and Senator Lott who contacted me about the nomination. Of course, I remembered learning about the CFTC in the classroom at both the University of Florida and MSU, but never did I think I would serve on the Commission. However, I found it very difficult to tell our senators no and so I found myself packing up and heading to Washington.
Public service has proved to be not only a rewarding experience, but a tremendous learning experience as well. You may be surprised that only 15% of the futures and options business deals with agriculture. The bulk of the business deals with energy, metals, and financial instruments. As a result, I have had to do my homework to familiarize myself with the broad spectrum of issues pending at the CFTC.
Commodity Futures Trading Commission
Realizing that only some of you are unfamiliar with the CFTC and the Commodity Exchange Act (CEA), I will be very brief in the remainder of my comments.
When the CEA was enacted in the mid 1930s, all futures contracts were between commercial parties dealing with agricultural products. In addition, the futures contracts were regulated by a division of the U.S. Department of Agriculture (USDA).
However, after great expansion and growth in agricultural products and the addition of non-agricultural products, Congress created the CFTC in 1974. The CFTC is responsible for ensuring safe and sound markets and for protecting market users from fraud and manipulation.
The growth of the markets has been nothing short of phenomenal. Our domestic exchanges have enjoyed primacy in the marketplace. This is true primarily in Chicago and New York. The United States government, through the CFTC, has enjoyed the role as the primary policy developer for the markets. However, as a result of this phenomenal growth industry is changing. Today there are larger and more sophisticated market users, with more complex products available.
The CFTC has a very defined role to play. However, in my opinion, this role has recently been over regulatory and burdensome in nature. Now, for good reason, based on the history of commodity trading, the agriculture sector has demanded that the CFTC keep a tight reign on exchanges. However, times have changed. I believe that now is the proper time to decrease regulatory burdens imposed by the CFTC on our domestic exchanges. We have learned from prior mistakes of both the exchanges as well as the CFTC. More importantly, we need to recognize changes in technology, which have led to better audit trails and advanced surveillance systems.
The CFTC and the U.S. exchanges must respond to the heightened foreign competition that has arisen recently. Specifically, the CFTC must not put the U.S. exchanges at an unfair disadvantage by imposing burdensome regulations. The CFTC must ensure that our domestic exchanges have the ability to compete in a global environment.
As you may know, the CFTC is in the process of another reauthorization. I believe that this process should provide Congress with an opportunity to make some necessary changes to both the CFTC and the Commodity Exchange Act.
First, I believe that the CFTC needs more freedom to handle our ever-changing technological advancements. Ten years ago, who would have ever considered the concept of trading over the Internet? Likewise, who can tell what type of technological advancements will require regulatory flexibility ten years from now? The CFTC must have the flexibility to deal with future innovations in a responsive manner in order to promote and encourage "outside the box" thinking.
Second, I believe that the reauthorization process should be primarily between Congress and industry. I firmly believe that industry knows best what works and what does not work. Therefore, it seems to me that industry should be the group that has the greatest input into the reauthorization of the CEA.
Today is definitely an exciting time to be at the CFTC and to be working with the futures and options industry. I pledge that I will work hard to be an effective, industry-responsive regulator, always mindful of the U.S. agricultural producer. Again, thank you for the invitation to speak to this distinguished group of people. I want each of you to know that anytime you have questions, thoughts, or concerns about anything regarding market regulation and the CFTC, you are more than welcome to give me a call. If you are ever in Washington, please stop by for a visit.
At this time, I would like to open the floor to any questions that you might have.