ASA and a coalition of agricultural stakeholders wrote this week to commissioners at the Commodity Futures Trading Commission (CFTC) in opposition to proposed new rules that would significantly increase margin requirements for farmers.  The “Customer Protection” rule would re-interpret how margin obligations will be determined, likely requiring futures commission merchants (FCMs) to assume that all margin calls from each customer are simultaneously not able to be collected, resulting in customers being asked to pre-fund their margin or pay to use the capital of the FCM as an injection into the customer account.

The group writes, “We support strongly the Commission’s efforts to enhance futures customer protections.  However, the capital charge and residual interest provisions of this rule will have the opposite impact – if adopted, customers will be exposed to significantly greater financial risk.”

Among likely impacts listed by the group are that “Futures customers will be compelled to send excess margin to their FCMs in anticipation of future market movement on existing positions – many billions of dollars more than needed to cover existing positions – the last thing customers want to do now, in the wake of MF Global and Peregrine Financial Group.” Additionally, “Futures customers will be compelled to borrow more money just to post margin on potential market moves – difficult for both lending banks and for customers to predict, and potentially difficult for smaller local banks.  This increased borrowing requirement negatively affects a customer’s ability to invest in their own business.”

The full text of the letter is available below.

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