A coalition of groups whose customers and members use futures markets this week in a letter asked the Commodity Futures Trading Commission to tweak a proposed consumer protection rule regarding residual interest and capital charge.
The groups said the current CFTC staff draft of the proposed rule, if adopted, will expose futures market customers to significantly greater financial risk.
The rule change would mandate that Futures Commission Merchants perform their residual interest calculation at the time of the first daily settlement – typically between 7-9 a.m. But, the groups say that would ensure that FCMs require pre-margining by customers, and thus twice as much customer money at risk if another FCM insolvency occurs, such as happened with MF Global.
The residual interest calculation refers to the requirement that FCMs "square up" all of their individual customer accounts to ensure that the amount exceeds any deficits in margining money due.
The rule also includes a capital charge provision that would require FCMs to take a capital charge for customer, noncustomer and omnibus accounts that are under-margined for more than one business day after a margin call is issued, rather than the three days that is customary now.
The groups are concerned that a one-day time period is not sufficient for all margin funds to be received by FCMs.
"Especially for farmers, ranchers and smaller agribusiness hedgers, who still send margin calls by check, one day is infeasible and would lead FCMs to require pre-margining," the groups wrote. "We again urge the commission to maintain the current three-day period before a capital charge must be taken by the FCM."
The groups suggested that the CFTC undertake a study to determine the impacts of the provisions before making a final decision. The provisions are slated for a vote Wednesday.
The letter was a follow-up to a Sept. 18 letter to Congress concerning the residual interest and capital charge provisions of the customer-protection rule soon to be finalized by the commission.
News source: National Grain and Feed Association