Sens attempt to fix damage of residual interest rule

WASHINGTON, DC – U.S. Senators Pat Roberts (R-Kan.) and Heidi Heitkamp (D-ND) today introduced a bill to enhance customer protections for farmers and ranchers by preventing regulations from the Commodities Futures Trading Commission (CFTC) from being overly laborious and making it significantly more difficult for farmers and ranchers to make economical trades on commodities.

Following the collapses of MF Global and Peregrine Financial Group, the CFTC proposed and finalized customer protection rules to help regulators better recognize trouble in firms before they occur. While some changes to the regulations are beneficial, the rules enacted by the CFTC could overly burden those who rely on futures markets to hedge risks, such as local farmers and ranchers, grain merchants and futures brokers.

The residual interest rule from the CFTC will eventually require futures customers to fully cover the margin of their futures contracts by the morning of the day following a trade. In order to comply with the new rule, brokers would be more likely to demand drastically increased initial payments from farmers, hurting the availability of funds that support the agriculture industry. The end result may drive some farmers out of futures markets due to increased costs or restrict capital that could otherwise be used to hire, make capital improvements and make other critical investments.               

The Senators’ bill, S. 2601, the Risk Hedging Protection Act simply provides futures customers with an additional day to get their needed payments to brokers to meet the margin call, while still protecting customers and the financial markets.

“As the Senate Agriculture committee works to reauthorize the Commodity Exchange Act, one of my biggest priorities is protecting end users like farmers, ranchers and grain elevators from over-burdensome or unrealistic regulations,” Roberts said. “This legislation ensures that the CFTC rules work in the countryside as well as on paper.”

“The reckless behavior by firms like MF Global put the livelihoods of hardworking North Dakotans at risk, and the CFTC is right to make changes that help identify bad practices. However, the rules need to be workable, so farmers can continue to make investments in grain, corn, wheat, and other products in the futures markets, and get their high-quality products to customers. This bipartisan bill is a commonsense fix to strike that right balance, “said Heitkamp.

Click here for text of the bill see below.

Click here for a one pager on the bill.

The bill mirrors legislation, H.R. 4413, already approved by the House Agriculture Committee and the full House of Representatives.

 Senator Roberts, a former Ranking Member of the Senate Agriculture, Nutrition and Forestry Committee, has been a vocal opponent to the residual interest requirements. He questioned former CFTC Chairman Gary Gensler on the proposed rules at a Senate Agriculture Committee hearing in February of 2013, and wrote the President regarding the rule and its impacts on rural America.

Senator Heitkamp is a member of the Senate Committee on Agriculture, Nutrition and Forestry and has pushed to address the concerns of end users related to the regulation of futures and swaps markets. Senator Heitkamp recently met with CFTC Chairman Tim Massad to stress the importance of end user access to important risk mitigation tools offered in the markets regulated by the CFTC.


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