The CFTC has recently implemented new margining rules for FCMs (Futures Commission Merchants), how does this impact retail traders in regards to margin calls?
Although it has been nearly three years since the collapse of futures giants, MF Global and PFGBest, the commodity industry continues to feel wakes in the aftermath. Since their demise, regulators have been tirelessly drafting and implementing safeguards aimed at protecting futures traders from brokerage firm risk.
In light of the aforementioned events the rules that worked well for decades were suddenly deemed inadequate. Unfortunately, as we learned as children on the playground and repetitively throughout our lives, a few bad apples ruin it for the rest. I say this because the same rules, rightfully, aimed at protecting customers, will likely force several brokerage firms, known as FCMs, or Futures Commission Merchants) out of the business due to enhanced compliance burdens.
The entirety of the new CFTC rule is in excess of 600 pages; we are going to focus on a small but impactful part of the rule known as the “Residual Interest Rule”.
What is the Residual Interest Rule?
Before we can discuss the Residual Interest Rule, we must have an understanding of what residual interest is.
Read more on possible changes to margin calls based on new regulation in the February 2015 issue of Stocks & Commodities Magazine
