POLITICO 
Regulators like CFTC Chairman Gary Gensler frequently keynote industry conferences. | AP Photo Close
By LAURA HAUTALA | 7/10/11 9:38 PM EDT
Want to talk to a Dodd-Frank rule writer? Try Las Vegas.
Traveling to glitzy locales to meet with regulators responsible for ironing out the details of the new financial regulation law has been a tactic for bankers and traders hoping to persuade regulators to keep bank capital requirements low, to lessen position limits on trading derivatives and to shield commodity-buying businesses from new swap rules — the next targets on the banking industry’s hit list.
Attendance at conferences put on for participants in commodities markets has shot up this year, a leader in the commodities world said, as regulators zigzag across the country on their agencies’ dime giving speeches on key rules and mingling with attendees over hors d’oeuvres and cocktails.
“There’s absolutely no question that the industry groups have more access [to regulators], partly because they put on more events,” said Ed Mierzwinski, director of the consumer program at U.S. PIRG, a consumer advocacy group.
Many observers said the conference mingling is just business as usual, even a necessary part of the regulation process, but consumer advocates fear the chummy relationship between the regulators and industry puts the interests of the Average Joe at a significant disadvantage since there are no beach-side conferences for the upside-down mortgage holder or the bruised-401(k) retiree.
“The sheer number of opportunities and the sheer level of outreach that can be funded by the industry can lead to a situation where the regulators spend most of the time paying attention to input of the regulated industries,” said Marcus Stanley from Americans for Financial Reform.
For key regulators, like those from the U.S. Commodity Futures Trade Commission, conferences are an opportunity to talk about the rules they’re considering. Since Dodd-Frank passed last year, CFTC regulators have traveled to at least 30 conferences sponsored by trade groups in places like Tokyo and Boca Raton, Fla., according to a review by POLITICO.
Industry groups said the conferences are just part of how work gets done in the regulatory world.
Speakers such as CFTC Chairman Gary Gensler frequently keynote the events, speaking on topics such as commodities clearinghouses, regulating swaps dealers and reducing interconnectedness between financial institutions — all key areas the industry hopes to influence.
“They speak, but they also sit and listen to other panels, and they learn,” said John Damgard, president of the Futures Industry Association, a trade organization for businesses in the commodities market.
“We’ve seen a much larger audience. In Boca, we’ve seen a lot of people who were involved historically in the [over-the-counter] world.” Damgard said. “There’s an awful lot of angst across the spectrum. It’s important to get this right, not just get it done on time.”
Rules made by the CFTC will regulate how the private sector can trade security-backed swaps, the financial instruments sold in a Wild West market that economists blame for the financial crash of 2008. As regulators look to commodities exchanges as a model for regulating these swaps, industry insiders have voiced concerns.
One proposed rule would set position limits, controlling how big a share of commodities markets an individual or financial institution can hold at one time. Many traders don’t see the rule as viable in a global commodities market and want to ensure regulators see their point of view.
“Position limits are not a part of the solution to make sure that markets aren’t manipulated outside the United States,” Damgard said.
What’s more, they point out that these markets include many products besides swaps bought to insure the now infamous mortgage-backed securities.
Damgard, who was the assistant secretary of Agriculture when the CFTC was created in 1974 under the Ford administration and has run the Futures Industry Association since 1982, knows the rule-makers and brought his board together with regulators in a meeting in late June.
“I think I’m the Jack Valenti of trade associations,” Damgard said of his long history at FIA.
Bart Chilton, an outspoken CFTC commissioner, addressed position limits rules at an annual FIA conference, at the Boca Raton Resort and Club, a sprawling hotel with five themed guest areas. Speaking on a panel, Chilton cited study after study that supported position limits.
“As regulators, our job is to ensure that prices are fair, and that’s what I’ll be looking at as we proceed to review our proposed rules on speculative position limits and bona fide hedging,” Chilton told attendees.
Congressional leaders built a lengthy rule-making process into Dodd-Frank, and travel has always been a way for rule-makers to connect with the industries they regulate.
“Regulators have a responsibility to keep the entities they regulate informed of their progress implementing this new law,” Sean Oblack, spokesperson for the Senate Banking Committee, said. “At the same time, it is imperative that these agencies act as responsible stewards of their budgets and make wise decisions with their expenditures.”
Washington observers say the exchange at conferences is healthy.
“It’s actually not a bad thing to have people who have to interact with each other formally have an opportunity to get to know each other,” said Norm Ornstein, a longtime government observer and resident scholar at the American Enterprise Institute for Public Policy Research. “The fact that that might involve a trip to Las Vegas or Orlando doesn’t trouble me very much.”
Ornstein also told POLITICO there’s nothing improper about a weekend in Vegas, since a regulator can’t expect anonymity out on the strip.
“I’ll tell ya, if you have a regulator [acting badly], you can’t be sure that it’s staying in Vegas,” Ornstein said. “It would be the height of stupidity to behave in a reckless way.”
Bill Black, a former bank regulator, said conferences are not of concern unless the hosts are paying, which a spokesperson from the SEC said is forbidden. Travel records from the CFTC indicate that no trade groups have paid for regulator travel since Dodd-Frank passed.
The CFTC’s Chilton did not accept money from the organizers of the 12th Annual Supply Summit Conference, hosted by the Oil Price Information Service in the Palazzo at the Venetian in Las Vegas. Organizers charged between $12,999 and $13,999 for an exhibitor to claim the display at the conference cocktail reception, which included a cash bar and lobster corn dogs with tarragon aioli for hors d’oeuvres.
Chilton spoke again about position limits, making good use of his casino backdrop in his speech.
“Limits are everywhere, even in a casino, but not much in the world of commodity trading — not yet,” Chilton said in his remarks. “The new Wall Street Reform and Consumer Protection Act instructs us to place limits on the size of speculative positions in the markets we regulate. I think that’s a very good thing and something I’ve favored for some time.”
Black, who said he’s seen employees at private law firms and federal agencies alike be swayed by small gifts, said regulators must be extra careful.
“What we know is that these small things work,” Black said. “You don’t want that feeling of gratitude that is inevitable as human beings.”
But Black said conferences shouldn’t be ruled out.
“Again I don’t see that these raise that [concern] as much, but that’s why you want to be really, really, really careful,” Black said. “Absurdly careful.”
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