The House Agriculture Committee yesterday grilled the U.S. futures commission chairman on rules that would require more transparency and safeguards in the unregulated $300 trillion U.S. swaps market, which has been blamed at least partly for the financial crisis of 2008.

The U.S. Commodity Futures Trading Commission is considering the new rules in 30 topic areas set out in last year's financial reform act. At its first oversight hearing yesterday, the House Agriculture Committee took up Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as the financial package is known.

Committee members said they were concerned that the commission was moving too fast in coming up with rules and that proposed rules go beyond the scope of the reform law.

"We simply cannot afford sweeping new regulations that are poorly vetted and impose substantial cost that outweigh benefits," said Agriculture Chairman Frank Lucas (R-Okla.).

Title VII deals with over-the-counter derivatives, or agreements that are made based on the expected future prices of interest rates, credit, commodities and other items. Swaps, as they are commonly referred to, are made without going through an exchange market.

Large banks dominate swaps, but crude oil contracts are commonly traded in the market, and some of the largest integrated oil and gas companies are major swap dealers.

The reform act requires those major swap dealers to register and report their deals in real time. It also calls for swaps to be traded on exchanges and guaranteed by clearinghouses, which reduce the settlement risks.

Large integrated oil companies commonly have separate risk management entities already that work to ensure stability.

"Mandatory clearing of the over-the-counter swaps and requiring major swaps participants and swap dealers to back up their deals with additional capital should help ensure that taxpayer dollars will not be needed to rescue these large financial firms again," said ranking member Collin Peterson (D-Minn.).

At least 200 swap dealers will be regulated under the proposed rules, said Gary Gensler, chairman of the CFTC. The goal is to provide more transparency, more competition and more safeguards, which will potentially lead to greater market stability and economic benefits for dealers and end users of products, he said at the hearing.

"Openness and competitiveness was at the core of what Congress asked us to do in these rules," Gensler said.

But lawmakers had concerns that CFTC was choosing speed over sound policy in crafting its rules. Regulation could touch the dealers who trade swaps, like the big oil companies, down to the people at gas stations filling up cars with oil that had once been involved in an over-the-counter deal. Swaps regulation has the potential to affect every segment of the economy, Lucas said.

"That's why we must ensure that we get it right" and not rush through regulation, Lucas said.

The act, passed last July, requires CFTC and the U.S. Securities and Exchange Commission to write rules mostly within a year. To date, CFTC has had more than 500 meetings related to the reform package and has vetted almost 4,000 comments. Gensler repeatedly solicited more public comments during yesterday's hearing. The commission expects to have additional public comments read and final rules written by July.

Gensler, though, said that rules could be phased in depending on which need more information before they are enacted. The commission has already proposed phasing in rules that would set limits on excessive speculation in energy and other commodities to fulfill another requirement in Dodd-Frank (Greenwire, Jan. 13).

Committee members also said they worried that the proposed swaps rules go beyond the scope of the act. Lucas said he was concerned that they would not exempt commercial end users from margin requirements or deposits to cover risk. Those firms use over-the-counter trades to hedge risks.

Rep. Vicky Hartzler (R-Mo.) said she visited with utilities in her district that feared the regulations were going far beyond the bill's intent.

"It's a huge amount of regulations. It's going to be very onerous on businesses and on the way things are supposed to be conducted," Hartzler said, adding, "We need less regulations overall."