CFTC holds calm ag advisory committee meeting
July 25, 2013 | 05:20 PM
The Commodity Futures Trading Commission held a meeting of its agricultural advisory committee today that was remarkable for its calmness compared with the high-pitched rhetoric that surrounds futures, derivatives and swaps issues on Capitol Hill.
CFTC Chairman Gary Gensler and other commissioners participated throughout the five-hour meeting, which was held at the CFTC headquarters and also available by audio for a national public.
While there is debate on Capitol Hill about repealing the Dodd-Frank Act or making major changes to it, members of the advisory committee focused on the practical aspects of implementation of the law.
Grain elevator operators want to offer farmers a greater variety of hedging opportunities, but are confused about what they are required to report and what constitutes a swap, one attendee said. A representative of a dairy co-op added that some industries have “special needs,” such as figuring out whether a marketing contract with volumetric optionality is a swap or not.
Commissioner Mark Wetjen, a Democrat, said some groups that filed comment letters a year ago may wish to file a second one now that they have more experience with the new rules.
A representative of the American Bankers Association said that commission staff had proven “extremely willing to listen” to the association and that many of the people experiencing problems with the implementation of new rules are “new players.”
Gensler said the commission staff is trying to put a final document on customer protections in front of the commissioners in the next six weeks.
Members of the committee expressed concerns about the commission’s plans to tighten up on the speed with which participants must transfer money to their futures commission merchants (FCMs) to cover margin calls.
But Gensler noted that the commission is coping with the fact that the law says, “Thou shalt not use one customer’s money to guarantee another customer’s position.”
Gensler said it is “totally appropriate” for an FCM to use its own money to cover a customer’s deficit. He also asked if any of the attendees wanted to “volunteer their surplus” to back another customer's business, but no one raised a hand.
On trying to protect customers from the kind of loss of funds that occurred in the cases of Peregrine Financial Group and MF Global, attendees said it would be impossible to avoid all bad actors and that the issue of getting money repaid is dependent on the bankruptcy code, but a commission official said the point of the new rules was to stop the losses before they occur.
The committee also engaged in a lengthy discussion of the commission’s rule that there must be recordings of financial transactions. Several attendees noted that ag transactions are small compared with financial transactions.
Gensler noted that firms have to record the calls, not farmers, but he also acknowledged that the commission may have to provide some relief to branch offices, particularly those that are run by one person who spends only a small amount of time on futures transactions.
The advisory committee also heard presentations on biofuel Renewable Identification Numbers and the contracts on them. The RINS program is run by the Environmental Protection Agency, but a commission official said the commission is taking a look at the RINS market because members and staff are interested in the interaction between RINS contracts and much larger contracts for commodities.
Today’s meeting was the first for the committee in two years. Gensler noted at the beginning that the CFTC has its roots in agricultural futures and suggested at the end of the meeting that another meeting might be held in six months, which would make it just before or after he is scheduled to leave office.
Scott O’Malia, the only Republican commissioner, suggested that the meetings be held each quarter.
CFTC Chairman Gary Gensler and other commissioners participated throughout the five-hour meeting, which was held at the CFTC headquarters and also available by audio for a national public.
While there is debate on Capitol Hill about repealing the Dodd-Frank Act or making major changes to it, members of the advisory committee focused on the practical aspects of implementation of the law.
Grain elevator operators want to offer farmers a greater variety of hedging opportunities, but are confused about what they are required to report and what constitutes a swap, one attendee said. A representative of a dairy co-op added that some industries have “special needs,” such as figuring out whether a marketing contract with volumetric optionality is a swap or not.
Commissioner Mark Wetjen, a Democrat, said some groups that filed comment letters a year ago may wish to file a second one now that they have more experience with the new rules.
A representative of the American Bankers Association said that commission staff had proven “extremely willing to listen” to the association and that many of the people experiencing problems with the implementation of new rules are “new players.”
Gensler said the commission staff is trying to put a final document on customer protections in front of the commissioners in the next six weeks.
Members of the committee expressed concerns about the commission’s plans to tighten up on the speed with which participants must transfer money to their futures commission merchants (FCMs) to cover margin calls.
But Gensler noted that the commission is coping with the fact that the law says, “Thou shalt not use one customer’s money to guarantee another customer’s position.”
Gensler said it is “totally appropriate” for an FCM to use its own money to cover a customer’s deficit. He also asked if any of the attendees wanted to “volunteer their surplus” to back another customer's business, but no one raised a hand.
On trying to protect customers from the kind of loss of funds that occurred in the cases of Peregrine Financial Group and MF Global, attendees said it would be impossible to avoid all bad actors and that the issue of getting money repaid is dependent on the bankruptcy code, but a commission official said the point of the new rules was to stop the losses before they occur.
The committee also engaged in a lengthy discussion of the commission’s rule that there must be recordings of financial transactions. Several attendees noted that ag transactions are small compared with financial transactions.
Gensler noted that firms have to record the calls, not farmers, but he also acknowledged that the commission may have to provide some relief to branch offices, particularly those that are run by one person who spends only a small amount of time on futures transactions.
The advisory committee also heard presentations on biofuel Renewable Identification Numbers and the contracts on them. The RINS program is run by the Environmental Protection Agency, but a commission official said the commission is taking a look at the RINS market because members and staff are interested in the interaction between RINS contracts and much larger contracts for commodities.
Today’s meeting was the first for the committee in two years. Gensler noted at the beginning that the CFTC has its roots in agricultural futures and suggested at the end of the meeting that another meeting might be held in six months, which would make it just before or after he is scheduled to leave office.
Scott O’Malia, the only Republican commissioner, suggested that the meetings be held each quarter.
