Grain News

NGFA's President Randy Gordon Addresses CFTC Regulations

Date Posted: December 5, 2013

National Grain & Feed Association President Randy Gordon discusses the Congressional Outlook (interview conducted in mid-November).

NGFA continues to work on CFTC regulations and whether or not they offer sufficient protection to FCM customers. What would NGFA like to see in this area, and what is the likelihood of success?

The NGFA continues to advocate that Congress, when deliberating the CFTC reauthorization bill, consider reforms to the U.S. bankruptcy code to ensure that customers with segregated funds are first in line when it comes to prioritizing claims and distributing funds following an FCM bankruptcy.

We also continue to explore the concept of creating a voluntary customer-protection insurance fund. We are awaiting results of a Futures Industry Association study in this regard.

And NGFA supports establishment of a pilot program to test the concept of introducing an optional, fully-segregated FCM account structure for futures market customers to eliminate risk of misuse of customer funds by FCMs or fellow customers.

As you note, the CFTC also continues to issue rules designed to protect customers from FCM bankruptcies.

Some of those rules are constructive. But the NGFA and like-minded producer and agribusiness groups are very concerned about what we believe to be a couple of misguided customer protection rules approved recently by the agency that we believe would have the perverse effect of significantly increasing the amount of margining money that country elevators and producers would need to send to FCMs.

One of those provisions would require FCMs to take a capital charge for accounts that are under-margined for more than one business day after a margin call is issued.

A second rule would require FCMs to ensure at all times that their residual interest in customer funds exceeds the sum of margin deficits of all customers.

Our analysis has shown that the impact would more than double the amount of margin money that a typical country elevator would need to send to their FCMs putting increased strain on capital requirements and potentially putting more – not less – customer money at risk.

There also is tremendous concern that the CFTC requirements would lead FCMs to require margin money up front – before the day’s trading is even done – just so they could be in compliance.

The saving grace right now is that these rules will not take effect for five years, which gives us some time to work with Congress and the CFTC to see if these deficiencies can be corrected.

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