Agricultural groups wrote Commodity Futures Trading Commission Chairman Gary Gensler this week reiterating concerns about the regulator’s new interpretation of capital charge and residual interest rules calling for futures commission merchants to maintain enough residual interest in a customer funds account at all times to exceed the total of all margin deficits.
The letter, which acknowledges that the Commission is making progress to make the rule more acceptable to agriculture, asks the Commission to conduct a study on the effects of the rule prior to any implementation.
The proposed rule represents a change from the current interpretation in which segregation calculations are made daily, and a merchant must hold sufficient funds at that specific point in time. Under the new rule changes, merchants will likely require customers, such as farmers and agribusinesses, to pre-fund their margin hedge accounts.
This increase in cost to users could discourage many producers from using the futures market and may force some to look to alternative risk management tools. The full letter is available at www.wheatworld.org/wp-content/uploads/other-cftc-customer-protection-coalition-letter-20131028.pdf.