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Making CFTC Rules Farmer-Friendly

Four years later, Congress is still mopping up from the collapse of MF Global, which exposed thousands of farmers and small businesses to potentially huge losses. A top priority for the House and Senate Agriculture committees is passage of a Commodity Futures Trading Commission (CFTC) reauthorization bill that includes customer protections.

Texas Representative Mike Conaway, newly installed as House Agriculture chairman, plans a quick start on the CFTC bill. His intention is to clear a bill for floor debate “as early in April as we can.” 

The new chairman of the Senate panel, Pat Roberts of Kansas, has told colleagues that CFTC is at the top of his list.

The starting point this year, says Conaway, will be a CFTC bill that he co-sponsored last year. It passed the House on a bipartisan 265-144 roll call, but it mired in an election-year morass in the Senate.

It included clawback language to allow customers to recover assets when a brokerage becomes insolvent – a mammoth problem when MF Global failed. In the early days, $1.6 billion in customer funds was reported missing. It took two years for bankruptcy trustee James Giddens to find the money and to restore it to customers. 

The problem hasn’t gone away. At the start of this year, customers who traded on U.S. futures exchanges through bankrupt Peregrine Financial had gotten back only 44% of their funds.

Besides recovery of funds, a common goal in the legislation is stronger rules to protect customer accounts from misuse. Many farmers and ranchers use futures accounts as a risk-management tool and cannot afford illicit manipulation of their funds.

The CFTC has moved on its own to improve customer protections. A sore point among lawmakers is a proposal that eventually would require customers to cover margin calls by the morning after a trade. 

CFTC chairman Timothy Massad says, in general, an earlier deadline “better protects customers from one another” by precluding brokerages from shifting funds among accounts. 

The National Grain and Feed Association says the morning deadline is too early. Customers will be forced to premargin their accounts and tie up money.

Roberts and North Dakota Senator Heidi Heitkamp filed a bill last year to give customers until the end of the day after a trade to cover their margins. It would ensure, Roberts said at the time, “that the CFTC rules work in the countryside as well as on paper.” 

The same provision was part of the House bill. 

CFTC commissioners voted last fall to keep the end-of-the-day deadline and to study whether an earlier deadline is practicable.

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