H.R. 4413, Customer Protection and End-User Relief Act

H.R. 4413

Customer Protection and End User Relief Act


June 23, 2014 (113th Congress, 2nd Session)

Staff Contact

Floor Situation

On Monday, June 23, 2014, the House will consider H.R. 4413, the Customer Protection and End-User Relief Act, under a structured rule.  H.R. 4413 was introduced on April 7, 2014 by Rep. Frank Lucas (R-OK), Chairman, House Committee on Agriculture.  The bill was marked up and reported out of the full Committee on April 9, 2014, by voice vote.

Bill Summary

H.R. 4413 reauthorizes the Commodity Futures Trading Commission (CFTC) in order to “better protect futures customers; to provide end-users with market certainty; to make basic reforms to ensure transparency and accountability at the Commission; and to help farmers, ranchers, and end users manage risks to help keep consumer costs low.”[1]  For a full section-by-section analysis of the bill, please click here.  Major provisions of the bill include:

Title I – Futures Customer Protections

“The Customer Protection and End-User Relief Act will better protect farmers and ranchers who use the futures markets by cementing several new regulatory customer protections into law.”[2]  Added protections include:

  • Requiring electronic confirmation of customer fund account balances held at depository institutions, in order to prevent fraud from forged paper documents.
  • Requiring firms that move more than a certain portion of customer funds from one account to another to follow strict reporting and permission standards before doing so.
  • Requiring firms who become undercapitalized to immediately notify regulators so they can assess the firm’s viability and act to protect customer funds, if needed.
  • Requiring firms to file an annual report with regulators from the chief compliance officer containing an assessment of futures commission merchants’ (FCM) internal compliance programs.  In addition, it ensures farmers, ranchers, and futures customers have an additional day to report their needed margin to an FCM to mitigate the effect of pre-funding accounts.
  • Providing legal clarity for futures customers that the assets of a bankrupt commodity broker are used to help pay back misappropriated or illegally transferred customer segregated funds.
  • Requiring firms to calculate and report customer account balances electronically to regulators on a regular basis and require the CFTC to complete a study on high frequency trading.[3]

Title II – Commodity Futures Trading Commission (CFTC) Reforms

Title II of H.R. 4413 amends the Commodity Exchange Act (CEA) to reauthorize the CFTC through FY 2018.  Moreover, Title II makes reforms to the CFTC to improve its effectiveness and ensure that all Commissioners’ interests are considered in the rulemaking process.[4]  These reforms include:

  • Modifying the CEA’s cost-benefit analysis requirements for proposed rules, in order to harmonize them with those of Executive Order 13563.[5]  Moreover, it requires that the cost benefit analysis be performed by the Chief Economist and published within the proposed rule along with the rule’s statutory justification.
  • Requiring that each division of the CFTC have a Director hired by the Commission.  The directors would be answerable to the entire Commission, not just the Chairman’s office.
  • Creating a new Office of the Chief Economist, in order to provide objective economic data and analysis for the Commission.  The Chief Economist’s role mirrors the structure and powers of the General Counsel.
  • Enhancing CFTC staff procedures governing the issuance of “no-action” or interpretive letters to improve Commission oversight and to prevent staff from being able to issue such letters at the last moment.  These procedures require that the Commission be provided with the final version of the matter with sufficient notice in order to fully review it.
  • Requiring the Commission and the Office of the Chief Economist to develop comprehensive internal risk control mechanisms governing market data storage, market data sharing agreements, and academic research using market data.  The Commission is required to report to Congress on the progress made in implementing the controls 60 and 120 days after enactment.
  • Amending the CEA to create a judicial review process similar to that of the SEC for rulemakings, as set forth in the Securities Exchange Act of 1934.  This would ensure that the two regulators charged with overseeing the derivatives markets have similar procedures in place to allow market participants to challenge Commission rules.
  • Directing the Government Accountability Office (GAO) to conduct a study of CFTC resources to assess whether they are sufficient to enable the Commission to effectively carry out its duties. The study is required to examine prior expenditures of the Commission on hardware, software, and analytical processes designed to protect customers in the areas of market surveillance and data collection.

Title III – End-User Relief Reforms

Title III addresses concerns arising from the CFTC’s implementation of the Dodd-Frank Act.  Many of the CFTC’s new rules have negatively impacted end-users, such as farmers, ranchers, manufacturers, and utilities, which makes it more difficult and costly to manage risks associated with their businesses.[6]  Title III makes a number of reforms to provide end-users with relief from some of the most onerous rules implemented by the CFTC.  The major provisions of Title III include:

  • Amending the CEA to allow many end-users who are considered legitimate “commercial market participants” to avoid being inadvertently classified as financial entities.
  • Ensuring that non-financial end-users are not disadvantaged in the marketplace if they use contracts that trade infrequently.  Currently, certain end-users in thinly trade markets spend millions in fuel-hedging costs, which significantly disadvantages them relative to end-users who trade frequently.
  • Providing relief to grain elevators, famers, agriculture counterparties, and commercial market participants from costly recordkeeping rules.  These rules require the recording of all forms of communication that could lead to a trade.  H.R. 4413 specifies that keeping searchable written records of the final economic terms of an agreement would sufficiently satisfy recordkeeping requirements.
  • Providing relief for end-users who use contracts that result in an actual physical delivery of a commodity that has an option to change the amount of a commodity delivered (e.g. natural gas to produce electricity).
  • Correcting capital requirements imposed on non-bank swap dealers that would result in those entities holding much more capital than their bank counterparts.  Current regulations make businesses for these dealers too expensive, which results in fewer marketplace participants.  The CFTC is required to formulate a workable capital requirement formula with guidance from other regulators.
  • Amending the CEA to clarify that  the current swap dealer de minimis level of $8 billion can only be reduced by Commission vote.[7]
  • Making conforming changes to CFTC regulations to bring its rules in line with the Jumpstart Our Business Startups (JOBS Act).
  • Allowing end-users to continue to hedge against business risks by providing a more workable definition of bona fide hedging related to position limits.

H.R. 4413 includes measures that passed the House or Committee with bipartisan support:

  • H.R. 634, the Business Risk Mitigation and Price Stabilization Act, which passed the House on June 12, 2013 by a vote of 411-12 (See Roll Call #215).
  • An amended, bipartisan version of H.R. 677, the Inter-affiliate Swap Clarification Act, which passed in the Agriculture Committee by voice vote and by the Financial Services Committee on May 7, 2013 by a vote of 50-10.
  • H.R. 742, the Swap Date Repository and Clearinghouse Indemnification Act, which passed the House on June 12, 2013 by a vote of 420-2 (See Roll Call #216).
  • H.R. 1038, the Public Power Risk Management Act, which passed the House on June 12, 2013 by a vote of 423-0 (See Roll Call #219).
  • H.R. 1256, the Swap Jurisdiction Certainty Act, which passed the House on June 12, 2013 by a vote of 301-124 (See Roll Call #218).

[1] House Report 113-469, at 1.
[2] Id., at 1.
[3] All information from  House Report 113-469, at 2.  Also – Section-by-Section Analysis
[4] Id., at 2.
[5] Executive Order 13563
[6] House Report 113-469, at 3.
[7] “The Dodd-Frank Act provides an exemption for a person who ‘engages in a de minimis quantity of swap dealing in connection with transactions with or on behalf of its customers.’ The rule requires that, in order for a person to be exempt from the definition on the basis of de minimis activity, the aggregate gross notional amount of the swaps that the person enters into over the prior 12 months in connection with dealing activities must not exceed $3 billion. Also, the aggregate gross notional amount of such swaps with “special entities” (as defined under CEA Section 4s(h)(2)(C) to include certain governmental and other entities) over the prior 12 months must not exceed $25 million.”  See: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/msp_ecp_factsheet_final.pdf, at 3.


“Since passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the CFTC’s jurisdiction has expanded significantly to include over-the-counter (OTC) derivatives, also called swaps.”[8]  Due to the Dodd-Frank Act, participants in swaps markets must register with the CFTC.[9]  Newly regulated swap market participants are subject to new business conduct standards contained in statute, which were promulgated as dozens of new CFTC rules.[10]  Due to the new regulations, many of which ignore the concerns of market participants who had nothing to do with the 2008 financial crisis, H.R. 4413 would make a number of reforms to reduce the burden of new CFTC regulations  so end-users can affordably manage business risks.  In addition, the    recent failures of futures commission merchants (FCMs) MF Global and Peregrine Financial in 2011 and 2012 respectively, thousands of farmers, ranchers, and futures customers collectively lost more than $1 billion in customer funds that were thought to be segregated by law apart from the funds of the FCMs.[11]  The House Agriculture Committee has held half a dozen hearings that examined why these failures occurred and how they could be prevented in the future.  “Title I of H.R. 4413 is designed to better protect futures customers and restore confidence in the marketplace while also providing regulators with enhanced tools to supervise FCMs.”[12]

Since the enactment of the Dodd-Frank Act, the CFTC has finalized 60 new rules to enforce the law and has issued an unprecedented 170 “no-action” letters in that span of time to delay, revise, or exempt application of these regulations upon various market participants.[13]  Consequently, the rulemaking process has proven confusing due to a lack of a comprehensive plan for setting a compliance schedule.[14]  Title II “makes basic reforms to the CFTC to help make it more effective and ensures that all Commissioners’ voices are heard in the rulemaking process.”[15]   Title III of H.R. 4413 responds to the CFTC’s implementation of Dodd-Frank, specifically CFTC’s new rules that have made it more difficult and costly for end-users to manage risks associated with their businesses.[16]    As a result, the ability of end-users to protect against risks associated with farming, ranching, manufacturing, and energy production and supply has been threatened.[17]  Title III addresses these concerns.

[8] Rena S. Miller, The Commodity Futures Trading Commission: Background and Current Issues, Congressional Research Service (June 24, 2013), at 1.
[9] Id. at 1.
[10] Id. at 1.
[11] House Report 113-469, at 4.
[12] Id. at 4.
[13] Id. at 2.
[14] Id. at 2.
[15] Id. at 2.
[16] Id. at 3.
[17] Id. at 3.


CBO estimates that implementing H.R. 4413 would cost $207 million in 2015 and $948 million over the 2015-2019 period, assuming appropriation of the necessary amounts.  CBO further estimates that enacting H.R. 4413 would affect direct spending and revenues.  However, those effects will be insignificant.


1)         Rep. DeFazio (D-OR) Amendment #16 – Amendment adds one requirement to the study on high frequency trading: whether such trading increases market volatility, including short term market swings such as the “flash crash.”

2)         Rep. Jackson Lee (D-TX) Amendment #14 – Amendment requires a study on entities regulated by the Commodities Futures Trading Commission with respect to their size, practice models, and assets under management.

3)         Reps. DelBene (D-WA), Gibson (R-NY), and Vargas (D-CA) Amendment #17 – Amendment ensures that the Commission’s assessment of costs and benefits regarding rules and orders will be affirmed by a court unless that assessment is found to be an abuse of discretion.

4)         Rep. Waters (D-CA) Amendment #9 – Amendment prohibits judicial review of any consideration by the CFTC of the costs and benefits of its rules and orders.

5)         Rep. Moore (D-WI) Amendment #2 – Amendment strikes Section 203, and replaces with the sense of Congress that the Commodities Future Trading Commission is already required by law to consider costs and benefits when promulgating rules and issuing orders, and is held accountable to this requirement by courts.

6)         Rep. Jackson Lee (D-TX) Amendment #13 – Amendment preserves existing law by striking “United States Court of Appeals for the District of Columbia Circuit or the United States Court of Appeals for the circuit,” and replaces with “United States District Court for the District of Columbia or the United States District Court for the district.”

7)         Rep. Fincher (R-TN) Amendment #1 – Amendment directs the Comptroller General of the United States to conduct a study of the efficiencies in leasing and rental costs at the Commodity Futures Trading Commission.

8)         Rep. Garrett (R-NJ) Amendment #8 –  Amendment exempts Registered Investment Companies (RICs) that are currently registered with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940 from duplicative registration requirements with the Commodity Futures Trading Commission (CFTC).  The SEC will continue to have full regulatory oversight and enforcement authority over RICs.   The amendment does not remove the jurisdiction and regulatory authority that the CFTC has over all futures, options and swaps transactions that the RICs invest in on behalf of their customers who are pensioners, retirees, and savers.

Additional Information

For questions or further information contact the GOP Conference at 5-5107.