{v^-i-- S. Hrg. 104-351, Pt. 1 Senate Hearings t Before the Committee on Appropriations Y 4,AP 6/2; S. H RG. 104-351/ Agriculture! Rural Developnent, an«. . . Agriculture, Rural Development, and Related Agencies Appropriations 1996 Fiscal Year 1 0 4'^ CONGRESS, FIRST SESSION H.R. 1976 ^^&m& PART 1 (Pages 1-1469) COMMODITY FUTURES TRADING COMMISSION A p^ DEPARTMENT OF AGRICULTURE ^"fl / Q ^ FARM CREDIT ADMINISTRATION '^9$ FOOD AND DRUG ADMINISTRATION ''0T/|« S. Hrg. 104-351, Pt. 1 AGRICULTURE, RURAL DEVELOPMENT, AND RE- UTED AGENCIES APPROPRIATIONS FOR HS- CAL YEAR 1996 HEARINGS BEFORE A SUBCOMMITTEE OP^ THE COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE ONE HUNDRED FOURTH CONGRESS FIRST SESSION ON H.R. 1976 AN ACT MAKING APPROPRLATIONS FOR AGRICULTURE, RURAL DEVEL- OPMENT, FOOD AND DRUG ADMINISTRATION, AND RELATED AGEN- CIES PROGRAMS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1996, AND FOR OTHER PURPOSES PART 1 (Pages 1-1469) Commodity Futures Trading Commission Department of Agriculture Farm Credit Administration Food and Drug Administration Printed for the use of the Committee on Appropriations U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 1996 For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 ISBN 0-16-052338-9 COMMITTEE ON APPROPRIATIONS MARK O. HATFIELD, Oregon, Chairman TED STEVENS, Alaska ROBERT C. BYRD, West Virginia THAD COCHRAN, Mississippi DANIEL K. INOUYE, Hawaii ARLEN SPECTER, Pennsylvania ERNEST F. HOLLINGS, South Carolina PETE V. DOMENICI, New Mexico J, BENNETT JOHNSTON, Louisiana PHIL GRAMM, Texas PATRICK J. LEAHY, Vermont CHRISTOPHER S. BOND, Missouri DALE BUMPERS, Arkansas SLADE GORTON, Washington FRANK R. LAUTENBERG, New Jersey MITCH McCONNELL, Kentucky TOM HARKIN, Iowa CONNIE MACK, Florida BARBARA A. MIKULSKI, Maryland CONRAD BURNS, Montana HARRY REID, Nevada RICHARD C. SHELBY, Alabama J. ROBERT KERREY, Nebraska JAMES M. JEFFORDS, Vermont HERB KOHL, Wisconsin JUDD GREGG, New Hampshire PATTY MURRAY, Washington ROBERT F. BENNETT, Utah J. Keith Kennedy, Staff Director Mark Van de Water, Deputy Staff Director James H. English, Minority Staff Director Subcommittee on Agriculture, Rural Development, and Related Agencies THAD COCHRAN, Mississippi, Chairman ARLEN SPECTER, Pennsylvania DALE BUMPERS, Arkansas CHRISTOPHER S. BOND, Missouri TOM HARKIN, Iowa SLADE GORTON, Washington J. ROBERT KERREY, Nebraska MITCH McCONNELL, Kentucky J. BENNETT JOHNSTON, Louisiana CONRAD BURNS, Montana HERB KOHL, Wisconsin MARK O. HATFIELD, Oregon ROBERT C. BYRD, West Virginia ex officio ex officio Professional Staff Rebecca Davies Hunt Shipman Galen Fountain (Minority) Administrative Support James B. Reynolds (ID CONTENTS Wednesday, March l, 1995 Page Commodity Futures Trading Commission 1 Farm Credit Administration 35 Department of Health and Human Services: Food and Drug Administration ... 49 Wednesday, March 8, 1995 Department of Agriculture: Rural Utilities Service 359 Rural Housing and Community Development Service 359 Rural Business and Cooperative Development Service 359 Wednesday, March 15, 1995 Department of Agriculture: Consolidated Farm Service Agency 457 Foreign Agricultural Service 457 Wednesday, March 22, 1995 Department of Agriculture: Natural Resources Conservation Service 579 Wednesday, March 29, 1995 Department of Agriculture: Food Safety and Inspection Service 651 Animal and Plant Health Inspection Service 670 Grain Inspection, Packers and Stockyards Administration 670 Agricultural Marketing Service 670 Wednesday, April 5, 1995 Department of Agriculture: Agricultural Research Service 751 Cooperative State Research, Education, and Extension Service 751 Economic Research Service 751 National Agricultural Statistics Service 751 Wednesday, May 3, 1995 Department of Agriculture: Office of the Secretary 1139 Wednesday, May 10, 1995 Department of Agriculture: Food and Consumer Service 1253 Material Submitted by Agencies Not Appearing for Formal Hearings Department of Agriculture: National Appeals Division 1397 Office of the Chief Financial Officer 1400 Office of the General Counsel 1415 Office of Inspector General 1426 Office of the Secretary and Departmental Administration 1453 (III) AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1996 WEDNESDAY, MARCH 1, 1995 U.S. Senate, Subcommittee of the Committee on Appropriations, Washington, DC. The subcommittee met at 10:25 a.m., in room SD-138, Dirksen Senate Office Building, Hon. Thad Cochran (chairman) presiding. Present: Senator Cochran. COMMODITY FUTURES TRADING COMMISSION STATEMENT OF MARY SCHAPIRO, CHAIRMAN OPENING REMARKS Senator CoCHRAN. The meeting of the subcommittee will come to order. Today we begin our hearings on the budget submitted by the ad- ministration for f iscal year 1996 with those agencies which fall within the jurisdictional responsibilities of this committee. This morning, at our first hearing of the year, we will be review- ing the budget requests of the Commodity Futures Trading Com- mission, the Farm Credit Administration, and the Food and Drug Administration. The Commodity Futures Trading Commission proposes a 21.5- percent increase in its budget for fiscal year 1996, compared to the fiscal year 1995 level. This is to permit an increase in staffing and to allow the CFTC to meet its other responsibilities. We are happy to have Ms. Mary Schapiro, who is Chairman of the Commodity Futures Trading Commission, here to present the budget and discuss it with the committee. We have a copy of your statement, Ms. Schapiro. We will put it in the record in full and invite you to make any comments on the subject that you care to. Please proceed. STATEMENT OF MARY SCHAPIRO Ms. Schapiro. Thank you very much, Mr. Chairman. It is a pleasure to be here today, and I have a brief oral statement. I appreciate the opportunity to discuss with you the President's fiscal year 1996 budget request for the Commodity Futures Trading Commission. As you have said, the President has requested $59,711,000 with a staff ceiling of 627. This is a modest increase over the appropria- (1) tions levels of the last several years, a time when markets have grown dramatically while CFTC resources have declined signifi- cantly. I want to share with you very briefly some statistics that high- light how the explosive growth in futures and options markets challenge the Commission's ability to carry out its oversight re- sponsibilities. As you know, Mr. Chairman, exchange futures and options trad- ing volume has grown over 200 percent in the last 10 years, while the CFTC staff has increased only 6 percent. CFTC market surveillance staff has been reduced by 25 percent since 1980, while the number of contracts that we must actively monitor has increased by 126 percent. Funds that are committed to professional management in the fu- tures industry have grown from $750 million in 1980 to $25 billion today. Yet we have only seven FTE's devoted to oversight of this activity. In just the last 3 years, exchange trading volume has grown by more than 42 percent while our staff has in fact decreased by 8 percent. In contrast, the budgets of the other financial service regulators have increased substantially. Since 1992, the SEC's budget has in- creased 35 p ercent. Funds dedicated to the Comptroller of the Cur- rency and the Federal Reserve Board have increased by 28 and 33 percent. The CFTC's funding level grew by only 4 percent, less than the rate of inflation. The decline in resources and staff has hampered the CFTC in carrying out its vital duties, including those created by the Futures Trading Practices Act of 1992. This legislation, as you know, gave the CFTC new regulatory tools to ensure market integrity and au- thority to e xempt certain transactions from regulation. The act also directed the Commission to undertake 12 rulemakings and six studies within very tight timeframes, all of which were accom- plished without additional resources that had, in fact, been antici- pated when those duties were assigned. In addition to meeting the challenges posed by regulation of the organized exchanges, the Commission also has been increasingly involved in reviewing the developments in the over-the-counter markets. The Commission has promoted market certainty by ex- empting swaps and certain other derivatives from the Commodity Exchange Act while preserving, most importantly, our ability to in- vestigate and prosecute fraud. The Commission is also a member, along with the Treasury, the Federal Reserve, and the SEC, of the President's Working Group on Financial Markets. Through this ve- hicle and others, we are considering a wide range of OTC issues. The Commission's concerns necessarily extend beyond domestic exchange and OTC markets. The global financial marketplace is becoming increasingly interlinked as world demand drives the growth of exchange derivative markets. U.S. markets are forging trading and other links with their foreign counterparts. Brokerage firms, subject to our regulation, are becoming increasingly multi- national. To e nsure adequate enforcement of market, customer, and financial protections, the Commission must carefully monitor inter- national developments, such as the recent failure of Barings, the British merchant bank. And as an aside, I should tell you that the energy and resources of the staff at the CFTC over the last several days have been almost totally consumed by the collapse of Barings Bank. The events surrounding the collapse of Barings demonstrate the increasingly global nature of the marketplace and how inter- nationalization has c hallenged all regulators, including the CFTC, to adapt our regulatory systems and to cooperate in responding to market developments. Finally, I want to emphasize that the Commission is not support- ing increased funding without making every effort to cut costs in- ternally. Over $2 million in controllable budget activities were ei- ther reduced or eliminated in our fiscal years 1993 and 1994 oper- ating budgets, and we continue to look for additional savings. We are also committed, as you know, to regulatory reform, con- sistent with the objectives of more efficient and streamlined Gov- ernment. We are undertaking a comprehensive review of ways to simplify both regulatory and internal rules. Soon after my arrival, I asked all the exchanges and trade associations to identify for us issues of major importance to them that arise from our regulatory system. We meet on a quarterly basis, at least. And we will be con- vening a s eries of public roundtables beginning in April to consider changes to the Commission's regulatory framework. In this complex, rapidly changing financial marketplace, the Commission's role as a strong, independent regulator has never been more important. The Commission cannot effectively imple- ment the responsibilities that Congress has given it and assume the duties imposed by marketplace developments without more re- sources. Under these circumstances, we believe the increase proposed in the President's budget is both modest and fully justified. Thank you, and I will of course be happy to answer your ques- tions. PREPARED STATEMENT Senator Cochran. Thank you very much for your statement and for your cooperation with the Committee. We have your complete statement and it will be made part of the record. [The statement follows:] 4 PREPARED STATEMENT OF MARY L. SCHAPIRO Mr. Chairman and Members of the Subcommittee: I appreciate the opportunity to discuss with you the President's fiscal year 1996 budget request for the Commodity Futures Trading Commission ("Commission" or "CFTC"). As you know, the President's fiscal year 1996 budget request for the CFTC is $59,711,000 with a staff ceiling of 627. This request represents a modest increase over the appropriations levels of the last several years, a time during which the markets have grown dramatically while CFTC resources have declined signif icantly . The Commission recognizes that the Subcommittee and the Congress face particularly difficult appropriations decisions in this year's budget environment. Nevertheless, the requested increase is not only justified but essential if the Commission is to carry out fully and effectively the mandate assigned by the Congress. The Commission has met the challenge of shrinking resources for each of the past three years. With operating budgets slashed, a number of functions transferred to industry self - regulators and staff stretched to the limit, without additional funding we will not be able to provide the oversight or enforcement presence that market users depend upon. The CFTC was created in 1975 because Congress recognized the need for an expert, independent agency to protect the important national interests that are served by commodity futures and options markets and to ensure market integrity through oversight of the exchanges and the thousands of intermediaries who invest individual, pension and corporate funds in these markets. The price discovery and risk shifting functions of these markets, long utilized by agricultural producers and processors, are now essential to the economic well-being of virtually every sector of the U.S. economy. Today, while the safety and integrity of the futures markets are as important as ever to processors.