CME Chairman Voices Concerns About Brokerage Collateral Ruling

Terrence Duffy, Chairmen of the CME Group, counseled Senators against a pending CFTC ruling regarding collateral set aside by brokerages. Duffy’s presentation before the Senate Committee on Agriculture, Nutrition and Forestry in a hearing to evaluate the CFTC was yesterday, July 17th 2013.

In his testimony, Terrence Duffy took aim at a certain pending CFTC ruling requiring all Futures Commission Merchants (FCMs) to put all residual interest on their funds in a separate account. This money would be used to refund customers if a critical situation, such as MFE Global’s dissolution, were to occur again.

But Duffy doesn’t believe that this would do well to protect customers from losing money; instead, he warned the Senate that this could cause brokerages to be pushed out of the market, decreasing both liquidity and competition within the market. Furthermore, he appealed to the Committee by arguing that these changes would disproportionately impact smaller FCMs with stronger ties to agriculture.

Finally, Duffy reasoned that the proposed ruling would disrupt the ‘current regulatory structure’ of having institutions such as the NFA and CME do risk-audits of FCMs.

According to Bloomberg, the CFTC has not yet determined whether or not the regulation will be passed, and spokesman Steve Adamske did not comment on Duffy’s commentary