October 30, 2013
I would like to thank staff for their hard work on the customer protection rules. I appreciate the hard work of the staff of DSIO, DCR and OGC who have contributed to this rulemaking.
In the wake of the global financial crisis, it is extremely important to intensify regulatory efforts to strengthen customer protection policies in order to promote the financial stability of the derivatives markets. There is no dispute customer protection must be the cornerstone of the Commission’s oversight. Sound customer protection policies and measures will improve the efficiency and transparency of financial markets.
I do support several provisions of the rules that allow customers greater insight into the operations of an FCM. These provisions include: an improved FCM disclosure regime that will give customers new and critical information about their FCM exposures, elimination of the alternative method of calculating segregation requirements for §30.7 funds (treatment of foreign futures or foreign options), improved reporting of segregated fund balances, and enhancements to risk management procedures.
However, my main concern with the draft final rules is their radical reinterpretation of the longstanding residual interest deadline. This reinterpretation decreases the time in which customers’ margin calls must arrive to their FCM from the current three days to just one day.
Such a change would mean a drastic increase in pre-funding of margin, perhaps nearly double the amounts currently required. As a result, many small agribusiness hedgers will have to consider alternative risk management tools or, even worse, will be forced out of the market.
I recognize that the Commodity Exchange Act (CEA) does not permit an FCM to use the money of one customer to margin the futures or option positions of another customer.1 However, I believe that the Commission, in deciding whether to reinterpret this provision, must make such a decision based on data.
Therefore, I am proposing my amendment that would continue to make progress to accelerate the collection of margin of customers from 3 days after the settlement date to 1 day after settlement at 6 pm EST. Just like the draft final rule, the amendment would be phased in one year following the date of publication of the rules in the Federal Register; and just like the draft final rule, the amendment will also require a study to determine the feasibility of changing the collection date and the costs associated with such a move.
The main difference between my amendment and the draft final rule is that my amendment doesn’t mandate that in 5 years’ time, customers will need to meet their margin obligations by the end of the settlement cycle. The amendment simply lets a future Commission make a determination about the best way to proceed after it has collected all the evidence.
In other words, the amendment does not bias the study with an outcome that has been previously determined. Instead, my amendment will task a future Commission to perform the analysis and decide at that point, analyzing against future technology and payment methodologies what the best course of action should be. This way, the future Commission can make an informed and unbiased decision.
If the Commission votes for my amendment, I will be able to support this rule.
Again, I want to express my thanks to the Commission staff for their efforts on this rule.
Let me close by also thanking so many staff from the Division of Enforcement, who devoted their efforts and long hours bringing the recent charges against Rabobank and all of the other LIBOR settlements. Their work must be recognized by the Commission as well as the work from staff from OCE and DMO. We couldn’t do it without their hard work.
Anne M. Termine
Stephen T. Tsai
Maura M. Viehmeyer
Philip P. Tumminio
Mr. Chairman, thank you for you indulgence to all us to recognize all of their hard work.
1 CEA § 4d(a)(2).
Last Updated: October 30, 2013