Roberts has questioned whether the CFTC is engaging in “an ad hoc approach” to regulation and whether the agency did a sufficient cost-benefit analysis of proposed rules that the senator believes could drive up costs for farmers and ranchers.
“What we put in the proposal, I thought, was just law that you shouldn’t use one customer’s money to benefit another customer,” Gensler told the Agriculture panel. “What we’ve found is actually intra-day, during the midst of a day, if one customer has a deficit, the other customer’s surplus might have actually be benefiting. So we’re trying to deal with that practical circumstance.”
The Senate Agriculture Committee is soliciting comments on the rules, and industry sources expect the House Agriculture Committee to follow suit ahead of any reauthorization.
Futures are standardized contracts to sell an asset for an agreed-on price at a future date. Investors back their positions with collateral that’s usually placed in a co-mingled account at the beginning of the trading day.
The “residual interest” proposal would require brokers to keep enough funds in separate accounts all the time to cover customers’ deficits if the futures price changes during the day. This is intended to prevent situations in which unscrupulous firms shift money between accounts to hide big trading losses.
The agency also has proposed tougher accounting standards and new requirements on disclosure of risk.
The futures industry says the agency should consider alternatives, including the creation of an insurance fund for futures accounts or keeping collateral in banks instead of brokerages. Some are also calling on the agency to give firms an extra day to cover deficits.
Farmers, ranchers and small- and mid-sized brokerages that aren’t affiliated with banks would bear the burden of the tougher requirement and have to borrow more to stay in compliance, according to industry officials. The rules “would dramatically alter the way that [brokerages] and their customers have done business for decades and would substantially impact some customers’ ability to hedge their commercial risks,” Gerald Corcoran, CEO of R.J. O’Brien & Associates, the biggest U.S. futures brokerage, wrote in comments to the CFTC.
The scope and potential cost of the proposal is prompting some financial firms to keep a closer eye on regulatory agencies’ rule-making.
“They can’t hire enough people to do compliance and then they’re blindsided by a big stack of rules,” Roe said. “These are very complicated regulations that are hard to digest ... You can’t just wait for agencies to generate them.”