CFTC May Make Changes to Proposed Dodd-Frank Rule Regarding FCMs

The Commodity Futures Trading Commission (CFTC) is considering making adjustments to the Enhancing Protections Afforded Customers and Customer Funds Held by Futures Commission Merchants and Derivatives Clearing Organizations proposed rule.

According to CNBC, it is still unclear what changes the CFTC will make to the rule, which will require futures brokers to keep excess funds that exceed total customer deficits on hand at all times. However, the fact that the agency is contemplating changes to the rule shows that the CFTC is surely taking the industry criticism of the rule into account.

On Thursday, at an annual meeting of the American Cotton Shippers Association in New Orleans, Commissioner Wetjen said, “The staff responsible for this rule, they’re prepared to go in a different direction. We’re looking at a way where we continue to look at customer protection, but in a way that’s less costly. We want to avoid driving people out of the market.”

The proposed rule would require the funds of futures clearing merchants (FCMs) to exceed the sum of customer deficits at all times. The rule was proposed after the misuse of customer funds by MF Global and Peregrine Financial, both failed brokerages. Regulators argue the rule will help to guard customer money by impeding the use of one customer’s extra funds to cover the shortfalls of another.

Critics of the proposed rule contend that the new rule would strain smaller customers or brokerages that don’t have access to the amount of capital needed to meet the excess margin requirements.

At the cotton shippers meeting, Scott Parsons, managing principal at the Delta Strategy group, said, “”Either the FCM will have to front the money, or the fear is that this cost will be passed down to the ultimate customers and smaller customers will be hurt.”

The CFTC has yet to set a date to make adjustments to the proposed rule. However, CNBC reported that the earliest possible date would be two to three months from now, at the earliest, as the CFTC is currently occupied with finalizing the SEF rules.


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