July 1, 2013
The Honorable Debbie Stabenow
Chairwoman
U.S. Senate Committee on Agriculture, Nutrition and Forestry
328A Russell Senate Office Building
Washington, DC 20510
The Honorable Thad Cochran
Ranking Republican Member
U.S. Senate Committee On Agriculture, Nutrition and Forestry
328A Russell Senate Office Building
Washington, DC 20510
Dear Chairwoman Stabenow and Ranking Member Cochran:
The National Introducing Brokers Association appreciates the opportunity to submit the following comments to the Senate Agriculture Committee (Committee) with regard to issues relating to the reauthorization of the Commodity Futures Trading Commission (CFTC).
The National Introducing Brokers Association (NIBA) is a non-profit membership association of Introducing Brokers (IBs), Commodity Trading Advisors (CTAs) and Associated Persons (APs). Founded in 1991, the NIBA’s purpose is to provide education to registrants primarily engaged in futures and options transactions on behalf of retail market users. The Association has the support of Futures Commission Merchants (FCMs) and Exchanges, and has voiced the opinion of its member-brokers in U.S. House Committee hearings and CFTC reauthorization hearings, as well other CFTC meetings and roundtables for over 20 years.
Customer Collateral Protections
The NIBA generally commends both the CFTC and the National Futures Association (NFA) in their efforts to improve surveillance and fraud detection in an increasingly complex global marketplace. The public display of FCM financial information on the NFA’s website, and the so-called “MF Global” Rule are appropriate, and easy for customers to access and understand. However, NIBA members are concerned by the CFTC proposal that FCMs maintain a residual amount sufficient to cover the aggregate of customer margin deficits on a continual basis. Members believe that this requirement could substantially decrease liquidity. A decrease in liquidity is sure to cause an increase in costs for FCMs which will ultimately be passed on to end-users through their brokers. NIBA urges the Committee to re-examine this CFTC proposal. (Also see, NIBA Comment Letter February, 2013)
NIBA also believes that the Committee should give the CFTC the authority to determine the appropriate liquidation forum in the event of an FCM insolvency. In the MF Global (MFG) situation customers were confused and industry concerns were raised from the outset of the SIPA process because the revenues of MFG were overwhelmingly derived from its FCM business as opposed to its securities firm. In addition, in that context NIBA feels CFTC communications to an unsettled constituency were lacking.
Brokers Concerns
1.35 Recordkeeping Requirements. NIBA members are also concerned by the expansion of current data requirements as it relates to recordkeeping requirements detailed in Part 1 of the CFTC regulations. (Also see, NIBA Comment Letter August, 2011)This expansion of the written requirements, as well as the new requirement to record oral conversations, is certain to increase costs of compliance and strain business operations when the rule takes effect later this year. In addition to expense concerns, NIBA members are left trying to understand the scope of the requirement because of the vague language used throughout the new requirement. IBs and many CTAs have been through financial hard-times in the wake of the MF Global and Peregrine Financial defaults. They have struggled to keep their businesses together and to restore customer confidence in the process. This struggle has taken a heavy financial toll on the community as a whole. Although an exemption for smaller businesses has been contemplated by CFTC, NIBA believes this is not enough, and strongly urges the Committee to review Proposed Reg. 1.35.
Customer Account Insurance/ FCM Bankruptcy Reform
The NIBA recognizes the need to further study some form of customer account insurance. We support the efforts currently being undertaken by the Futures Industry Association (FIA), NFA and other industry groups.
NIBA believes that the CFTC Reauthorization process is the right venue to examine possible changes to the Bankruptcy Code which govern an FCM’s liquidation. Any uncertainties regarding the definition of “customer property” should be clearly defined to allow claims against the FCM’s general estate assets until the customer claims are paid in full. NIBA also believes that brokers’ commissions and withholding or guarantee accounts they fund on the FCM’s books should not be included among the general creditors of the bankrupt FCM, but should be moved up in the creditors chain because of their special relationship to the bankrupt entity.
Thank you for your careful consideration of all the above matters. Please do not hesitate to contact me at 312.498.3518 or melinda@futuresrep.com, if I can provide additional information on these issues.
Best regards,
Melinda Schramm, Chairman, National Introducing Brokers Association
