Agora-X, which is developing an institutional electronic communications network for OTC commodities, petitioned the Commodities Futures Trading Commission (CFTC) to allow for clearing for OTC grain contracts. Agora-X is asking for an amendment to Part 35, a rule that prevents the clearing of agricultural swaps in the absence of applicant-specific CFTC permission.
Certain ag products were excluded from the Commodity Futures Modernization Act of 2000, which allowed for the clearing of OTC transactions for most but not all commodity products. Agora-X is asking the CFTC to change Part 35 so all OTC contracts for commodity products, including agricultural products, can be submitted for clearing and do away with the current requirement that they be settled bilaterally. “It’s time to amend this rule to allow for everything to be done on a transparent basis,” Agora-X CEO Brent Weisenborn says, adding that “a centralized clearinghouse has proven to be the most efficient model” for clearing large transactions.
If the CFTC amended the rule, it would result in more clearing opportunities for the exchanges. “It would be handy for traders and commercial participants to see the volume and price points of swap activity, which is why Agora-X and others are asking for the exchanges to do the clearing. That would make the OTC market more transparent, but it will probably never be fully transparent unless CFTC makes exchange-cleared activity mandatory,” says Elaine Kub, analyst at DTN.
Kub thinks that although this particular request might not make it happen, the idea behind the petition could eventually come to fruition. “Eventually we’ll see swap activity information handled through an exchange and published in some form or another. When that information is available, it may help the market to some extent,” she says.