CFTC Commissioner Behnam talks ag in Michigan
September 17, 2018
Rostin Behnam, a Democratic member of the Commodity Futures Trading Commission, said Saturday that the commission "remains vigilant" to ensure that block trades in agricultural products at the Chicago Mercantile Exchange are not interfering with end-users' ability to manage risk and discover prices in a fair and efficient manner.
But he said block trades — the privately negotiated transactions that are permitted to be executed apart from an exchange's central limit order book — so far have proved to be a useful tool for institutional market participants who need to execute large transactions.
In a speech to the Michigan Agri-Business Association on Mackinac Island, Behnam noted that when the CME expanded block trading from 11 products to the full suite of agricultural futures and options in January, market participants expressed concerns regarding liquidity, price transparency, and trade reporting in the contracts that had block trades.
Behnam said that the CFTC's Agricultural Market Advisory Committee, which he chairs, had discussed block trading three months after the CME listed block trades, examined what was working and not working and that many issues have been addressed and resolved.
He also noted that the staff of the Market Intelligence Branch in the Division of Market Oversight analyzed all grain, oilseed, and livestock transactions from Jan. 8 through March 31 this year and concluded that:
1. "Block trades in the agricultural space comprise a very small portion of overall volume, but are somewhat more significant on specific dates and for certain contract months;
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2. "Block trades are primarily occurring in nearby months; and
3. "Prices of blocks appear to be priced within the CME rule for 'fair and reasonable prices'"
Behnam also signaled that he considered the commodity futures conference that the CFTC cohosted with Kansas State University's Center for Risk Management Education and Research this year to be a success, and that he expects another will be held next spring.
In more general remarks, Behnam, who was an aide to Sen. Debbie Stabenow,D-Mich., noted that he was giving the speech on the 10th anniversary of the Lehman Brothers collapse that led to the passage of the Dodd-Frank financial services reform law, which many Republicans now criticize.
"The Dodd-Frank Act mandated a regulatory regime of the swaps market that has made it safer, more transparent and arguably more efficient," Behnam said.
"All positives for the swaps markets, and ultimately for all of us as beneficiaries of stable prices for goods."
"There is always more work to be done, and the CFTC, myself included, work hard to ensure that we remain vigilant to the risks that infect our markets, and to identify danger before it's too late.
"As I enter my second year as commissioner, I am cautious of the rhetoric and economic tailwinds that threaten to uproot the regulatory landscape that is only just beginning to show its strength. I am cautious because I appreciate that this opportunity to second guess our progress to date is a luxury and that any choices we make may be colored by the recent tide of populist sentiments and information asymmetries."
Behnam ended his speech with what seemed to be a subtle pitch for the association to urge Congress to provide the CFTC more resources.
"The agency's roots are in agriculture," Behnam said. "As Congress considers a five-year farm bill to provide the rural economy with the necessary risk management tools and investment it needs, please consider the CFTC in the same light."