Agora-X, which is creating a new electronic trading and negotiation platform for commodities, has petitioned the Commodity Futures Trading Commission (CFTC) for an order to allow Agora-X to clear trades in agricultural swap and swaption contracts negotiated on its platform to a registered Designated Clearing Organization (DCO).
Clearing of over-the-counter (OTC) trades in agricultural swaps and swaptions including wheat, corn and soybeans, which current CFTC rules do not allow without a specific exemption, is desirable because it would reduce counterparty risk between market participants, a concern during the current financial market disruption.
The Agora-X petition seeks an exemption, under Section 4(c) of the Commodity Exchange Act (CEA) and CFTC Rule 35, to allow clearing of agricultural swaps and swaptions negotiated on the Agora-X platform. The public interest would be served by the availability of an efficient electronic communications platform allowing negotiation in these contracts between qualified institutions, such as grain companies, the Agora-X request noted. This petition is among several other 4(c) petitions already filed by the CME, CBOT and The ICE. The Agora-X petition is expected to be available on CFTC's website in the near future.
Current CFTC rules allow clearing of OTC trades for other types of commodity contracts, but not agricultural swaps and swaptions. As previously announced, Agora-X also has submitted a petition to the CFTC to change Part 35 to enable clearing industry-wide of OTC agricultural swaps and swaptions. If Part 35 is amended, the 4(c) exemption would not be necessary.
Agora-X is currently preparing to host institutional trading and negotiation in OTC derivatives contracts on a range of energy, metals and agricultural commodities. Although clearing of the grain contracts is not required for the operation of the Agora-X platform, Agora-X believes that allowing that clearing would be an important step forward for the transparency and efficiency of agricultural commodities markets.
Brent M. Weisenborn, Chief Executive Officer of Agora-X, said: ``There seems to be broad agreement that the CFTC should begin to allow clearing of OTC trades in agricultural swaps, including swaptions, given the impact of the current credit difficulties on the markets. The Agora-X electronic platform is designed to provide major market participants with greater liquidity, a clear view of pricing and efficient negotiation. Clearing would address counterparty concerns that currently accompany OTC trading in agricultural contracts.''
Agora-X requested expedited consideration from the CFTC because of the volatile conditions in the financial markets and the desirability of providing enhanced credit management facilities to market participants.