WASHINGTON, D.C., U.S. — The Commodity Futures Trading Commission (CFTC) on Nov. 3 unanimously approved publication of a proposal that would fix the "residual interest" problem created in last year's so-called customer protection rule, the National Grain and Feed Association (NGFA) said on Nov. 4.
That provision, adopted in November 2013 despite opposition of the NGFA and a broad coalition of national agribusiness and producer groups, likely would force futures commission merchants (FCMs) to require pre-margining of futures customers' hedge accounts for market moves that might never occur - and would put more customer funds at risk if another MF Global situation occurred.

The NGFA strongly supports the CFTC proposal, which now will be published in the Federal Register for a 60-day public comment period.  The new proposal would remove a requirement that FCMs' calculation of residual interest (the FCM's own funds contributed to "top up" hedge accounts) occur at 9 a.m. on the day following the futures trade.  Instead, the proposal would keep the residual interest calculation at 6 p.m. on the day following unless the CFTC takes additional action to change it.

FCMs have told the industry that the 6 p.m. deadline would not force pre-margining. The proposal retains a CFTC public roundtable on residual interest and a CFTC staff study of the issue.

The Commission's action mirrors a section of a CFTC reauthorization bill passed by the U.S. House of Representatives earlier this year and supported by the NGFA. The Senate has yet to act on a companion bill.

The CFTC also approved publication of a proposal that would formalize relief from recordkeeping requirements that had been imposed on companies that are members of a commodity exchange.  The new proposal would remove the requirement that such firms maintain records of written communications leading to a futures transaction in a manner identifiable and searchable by transaction.  Capturing and maintaining such records, especially for text messages, is technologically infeasible at present.

In a final item of business, the Commission approved a new interpretation that clarifies the line between swaps and cash forward contracts that contain volumetric optionality provisions.