CFTC Said to Plan October Votes on Client Funds and Speculation

The U.S. Commodity Futures Trading Commission next month plans to complete rules to boost protection of customer funds and release a new proposal for limits on speculation in oil, natural gas and other markets, according to two people familiar with the matter.

The agency is debating the regulations internally and plans to vote at an Oct. 24 meeting in Washington, according to the people who asked not to be named because the schedule is private. The customer-protection rules have been under debate for more than a year, while earlier rules limiting speculation were overturned by a federal judge.

Steve Adamske, a CFTC spokesman, declined to comment on the schedule, which could change because of internal debate. Commission Chairman Gary Gensler is scheduled to speak today in Washington at the U.S. Chamber of Commerce for a group of corporate treasurers.

The agency’s customer protection rules, proposed after the collapse of MF Global Holdings Ltd. initially left a gap of $1.6 billion in client funds, have spurred opposition from the futures industry. One part of the proposal required brokerages to at all times of the day keep enough of their own money, or residual interest, on hand to account for their customers’ deficits.

The CFTC said the proposal would avoid the possibility that brokerages would use end-of-the day balancing to “obscure a shortfall.” The change from industry practice would tie up additional capital and would probably lead to increased costs for clients, according to brokerages that objected to the rule.

Deficit Calculation

The agency is considering changing the proposal to require the calculation of deficits to be completed by the close of business the day after a trade occurs, according to one of the people. The change, still being debated, may be phased in and the agency might also require a study to determine the feasibility of requiring a faster timeline for calculating deficits, the person said.

The Futures Industry Association, the main lobbying group for the futures market, estimated in June that brokerages collect at least 90 percent of margin deficits by the end of the business day after when a trade is conducted.

The top Democrats and Republicans on the House and Senate agriculture committees overseeing the CFTC urged the agency to “carefully consider” the rule’s consequences.

Protecting Farmers

“The goal of increasing futures customer protections should be to strengthen the markets without harming the ability of American farmers, ranchers and end-users to hedge their legitimate business risks,” Representatives Frank Lucas, an Oklahoma Republican, and Collin Peterson, a Minnesota Democrat, said in the Sept. 25 letter, which was also signed by Senators Debbie Stabenow, a Michigan Democrat, and Thad Cochran, a Mississippi Republican.

The speculation limits proposal would be the agency’s next step to fulfill a Dodd-Frank goal of placing curbs on excessive speculation in commodities. The agency is appealing a judge’s ruling that the CFTC failed to assess whether limiting the number of contracts a trader can have in oil, natural gas or other commodities was necessary and appropriate.

The agency’s rule was challenged by the Securities Industry and Financial Markets Association and International Swaps and Derivatives Association Inc., in one of the financial industry’s highest-profile efforts to overturn a Dodd-Frank rule.

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.