Sunday, January 3, 2010

CFTC Adds to Futures-Broker Rules

Posted in the Wall Street Journal by Sarah N. Lynch:

The Commodity Futures Trading Commission finalized rules on Thursday that will raise capital standards for commodity brokers and require firms to incorporate over-the-counter derivatives positions into their risk-based capital calculations.

Under the new rules, published in the Federal Register, futures commission merchants will have to raise their adjusted net capital from a minimum of $250,000 to $1 million. Adjusted net capital requirements for introducing brokers, meanwhile, will increase from $30,000 to $45,000. Introducing brokers can take orders to buy or sell futures but they don't hold customer funds.

In addition, the rules will also stiffen margin requirements for commodity-brokerage firms trading on their own accounts, forcing them to raise the percentage used to calculate so-called maintenance margin requirements from 4% to 8%. That puts the requirement on par with the amount customers are required to maintain.

The new rules governing capital requirements and risk-management issues come at the end of a busy year in Washington as regulators and lawmakers have pushed to overhaul the financialregulatory system and avert another crisis. The CFTC's regulations aim to ensure that firms have the financial backing for the risks they are taking in the market.

The CFTC said the new adjusted net capital requirements will have a minimal impact for a number of reasons.

As of September, all but two futures commission merchants holding customer money already held capital well above the new $1 million minimum.

In addition, the National Futures Association, the self-regulatory group for the futures industry, adopted rules in 2006 that raised net capital requirements for introducing brokers to the levels now being imposed by the CFTC.

The agency said it is pushing ahead with the new capital requirements because the old ones "do not reflect inflation and generally are no longer consistent with the regulatory objective of requiring registrants to maintain a minimum base of liquid capital from which to meet their financial obligations."

The new regulations will take effect in about three months.

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