Commodity hedging margin rules go into effect

The sudden bankruptcy of New York-based commodities and derivatives trading house MF Global in 2011 caused severe problems for several nonferrous scrap traders who had been conducting business with the firm.

 

Subsequent dialog between traders and the U.S. Commodity Futures Trading Commission (CFTC) has resulted in the development of new hedging margin requirements rules.

 

Among the scrap traders who communicated with the CFTC about rules changes was Michael Eisner of the scrap metal trading company Premier Metal Services, Solon, Ohio. (A September 2014 profile of Premiere Metal Services can be read here.) 

 

Eisner acknowledges he was among the parties harmed by the bankruptcy of MF Global and says in the wake of the event he spent considerable effort and raised his voice to help make sure scrap traders who hedge would be better protected in the future.

 

“When MF Global went down, I saw a lot of things that weren’t right about the terms and conditions with futures commissions merchants (FCMs). We decided to become proactive and met with the CFTC,” Eisner told Recycling Today for the September 2014 profile story.

 

“We were successful in getting a lot of things changed. Mark Weintraub did a great job with it,” he said of his current Premier Metal colleague, who at that time was an attorney with the Cleveland law firm Thompson Hine LLP.

 

“We hedge strictly for risk management, not to make money,” Eisner continued. “The way things were set up, the money we had on account was at risk when it shouldn’t have been. The changes are for the better, but to enact those changes we had to involve the CFTC, several U.S. senators and congressmen.”

 

The text of the final rules changes as they have been enacted by CFTC can be found at 

www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2013-26665a.pdf.