CFTC Commissioner Brian Quintenz assured agricultural industry (“Ag industry”) producers and cooperatives that the CFTC is continuing its efforts to protect and promote the futures market. Mr. Quintenz promoted education, accessibility and market integrity to increase farmers’ and ranchers’ engagement in the futures market.
In remarks before the 2018 Agricultural Commodity Futures Conference, Mr. Quintenz urged Ag industry producers and cooperatives to continue using the futures markets to hedge their risks. Mr. Quintenz addressed producer concerns that the marketplace had become “too complex” and committed the CFTC to closing information gaps and promoting education for farmers and ranchers.
Mr. Quintenz argued that accessibility is particularly challenging for farmers and ranchers due to fewer available futures commission merchants (“FCMs”). FCMs, which Mr. Quintenz described as the “gateway” to the futures market for farmers and ranchers, have decreased in number by approximately 64 percent since the financial crisis. In addition, the FCMs that are still available reportedly have begun limiting the services they offer to smaller clients. As a remedy, Mr. Quintenz discussed reform of the supplementary leverage ratio calculation, which penalizes banks’ provisions of clearing services, and may be a contributor to the consolidation of the FCM sector. Mr. Quintenz stated that he would support policies that encourage client clearing services in order to strengthen the FCM sector.
Mr. Quintenz also acknowledged that the CFTC had “no role” in the regulation of global commodity prices or design of futures contracts. However, he promised that the CFTC would promote convergence between the futures and cash markets and require regulation of the terms and conditions of futures contracts.
Lofchie Comment: While legislators and regulators commonly bemoan the size of financial firms and decry “too big to fail,” they simultaneously adopt regulatory requirements that impose significant fixed costs. This is true not only as to CFTC regulation, but also as to banking and securities regulation. The CFTC under Chairman Gensler was particularly “aggressive,” imposing numerous rules that raised costs and reduced profit opportunities. At the time, Mr. Gensler assured the public and Congress that the new requirements would reduce costs to investors. He was mistaken.
Commissioner Quintenz points out that the exodus of firms from the futures industry is due, in part, to increased regulatory costs. He committed to working to strengthen FCMs. It will probably take quite a bit to reverse the trend. Being an FCM in today’s regulatory environment does not seem an attractive new business: tremendous fixed regulatory costs; no opportunity for differentiation of products; and no certainty that the regulators would not revert to their previous aggressive ways.