Additionally, he said changing the timing of FCMs' calculation of residual interest would "expose customers to much more risk."
In addition to comments on the CFTC rule, the NGFA also stated it believes the "U.S. bankruptcy code needs to be harmonized with the Commodity Exchange Act and CFTC regulations to clarify and ensure that customers come first in FCM insolvencies."
Testimony from Terrence Duffy, executive chairman and president of the CME Group, also reflected concern in the CFTC and proposed changes.
Duffy said at times the Commission has proposed "needless rules" on futures markets, which he said have a long history of oversight and regulation.
As NGFA did, he criticized the residual interest rule, noting its potential impacts on smaller FCMs.
"We believe this rule and others could have a very significant impact on certain sectors in the marketplace, particularly smaller FCMs that serve the agricultural community," he said.
He argued that the rule would require at all times an FCM's residual interest in segregated accounts should exceed the margin deficiencies of its customers. But that, he said, needs access to data in real time, which FCMs don't have.
"Without access to this data, FCMs will be required to maintain substantial residual interest in segregated accounts or require customers to significantly over-collateralize their accounts. We believe this will be a significant and unnecessary drain on liquidity that will make trading significantly more expensive for customers to hedge," he said.
Walter Lukken, CEO of the Futures Industry Association, made similar comments, noting that a provision requiring customers to pre-fund their margin would require customers to always keep excess funds in their FCM.
Though the plan for reauthorization did endure some criticism, Lukken in his testimony highlighted changes that deal with consumer protection.
"To a significant extent the proposed (CFTC) rules build upon and codify the recommendations that FIA made and rules the designated self-regulatory organizations have adopted," he said, noting that the group endorses the regulatory purposes in the proposed changes.
But, he said, the FIA did submit a letter to assist the Commission in "striking an appropriate balance among its several proposals to assure that the producers, processors and commercial market participants that use the derivatives markets to manage risks will be able to continue to have cost-effective access to the markets and a choice of FCMs"
The National Farmers Union praised the opportunity for a hearing on the CFTC, noting that Dodd-Frank placed larger responsibilities on the CFTC to protect customers.
"The MF Global and Peregrine debacles underscore the need for regulatory oversight of our financial and commodity markets. Now is not the time to turn back – CFTC must be allowed to continue in its important work," NFU President Roger Johnson concluded.
Complete testimony of all hearing participants is available here.