CFTC's Berkovitz to NCBA: Single FCM loss could disrupt markets

Published 07 Aug, 2019

Dan Berkovitz, a member of the Commodity Futures Trading Commission, told the National Cattlemen’s Beef Association that the loss of a single futures commission merchant (FCM) could disrupt markets.

“Due to the current capital requirements, bank FCMs have limited ability to take on additional clearing clients. In this capital-constrained environment, the sudden loss of a single large FCM could be disruptive to markets if its clients’ positions cannot be ported smoothly to other FCMs and the positions are liquidated in bulk,” Berkovitz said at the summer NCBA meeting in Colorado.

“The ongoing availability of clearing services for the agricultural sector and systemic risk go to the heart of your ability to access the markets efficiently and effectively,” Berkovitz said. “These are concerns I think we all share.”

“There are no simple fixes to reverse this trend. A number of factors have contributed, including low interest rates, cross-border competition, capital demands, and the cost of new technology.

“I have supported revisions to bank capital requirements so that capital does not have to be set aside to cover customer margin funds. This change will increase clearing capacity at bank FCMs. Hopefully, more banks will expand clearing services as this change gets implemented.

“However, changing capital requirements alone will not solve the clearing capacity problem so I think this is an issue we must continue to address,” Berkovitz said.

“Many of the factors that have contributed to this problem are outside the control of the CFTC, but we must do what we can to increase the capacity and diversity of clearing services.”

Berkovitz, a Democratic appointee to the commission, said he is in the midst of touring rural America to learn more about how the CFTC can help farmers and ranchers.