FM: Former President Clinton, speaking at the CME Conference, said he supports Dodd-Frank but added it was important to get the rules done quickly. Do you agree?
JC: It is important to move as quickly as you prudently can do in writing these rules, getting the commentary and moving forward. There is uncertainty in those considerations right now. [These rules] have real implications to our business. We are going to need to know how to work in the world of Dodd-Frank. It creates the rule-making authority to be put forward by the various agencies and it is important to see how well they work together. One of the major problems historically has been that coordination among the agencies has been less than optimal. Dodd-Frank is intended to get greater integration and common view to what the regulatory environment would be, so there wouldn’t be the arbitrage among various players. That is every bit still a question in people’s minds. And secondly, it is even a greater risk when put in a global context. We are all looking for a real answer to those concerns that come from unwritten rules and uncertain coordination.
FM: Dodd-Frank can’t address global regulatory issues. Is that an important element that has to happen?
JC: Absolutely. Dodd-Frank may not be able to impose [on the world], but America’s leadership in this field is essential for other people to fit in, and some might follow our initiatives.
FM: You recently acquired Washington Research Group. What is the significance of this acquisition?
JC: Everything that we just talked about is in play with Washington Research Group. They really have credibility and experience in dealing with the regulatory function. Not just in finance but power, communications and a lot of things that our customers are interested in today and will be tomorrow. Washington, no matter who is in charge, is going to be an important consideration in how people build their business. This is a very well-established, go-to institution for following the details of what is happening in the regulatory and legislative environments. It gives us real strength and a real edge to serve our clients’ needs in putting together their business strategy. It also provides a framework for us to put together U.S.-based research that goes in line with what I would like to do as broker/dealer in the equity space, and ultimately evolve into the investment banking arena. You need to be able to cover companies. It will be a tremendous asset in building the future of MF Global.
FM: Managed futures and hedge funds are growing rapidly, and your former parent (Man Group) was a pioneer in this area. Is that an important part of your growth strategy?
JC: Yes. If you are going to build the factory or have the factory for futures and options and a lot of the other products that are going to be cleared and traded on exchanges, you would want to use that as intensively as possible. And I think that was recognized historically by what was smart leadership of Man Group and it is equally applicable in today’s environment. We’ve already dipped our toe into the water in Asia on this with a joint venture with our partner in Taiwan, and we’re studying how best this could be accomplished going forward. A lot of our clients may want the exposure to commodities and futures-traded products in a way other than just a one-off basis into a specific financial instrument and they may want it in a fund format. Particularly in our retail client base, which we are working to build on what we have in place, it will be an important product line.
FM: How is the zero interest rate policy affecting MF Global? Are you surviving better than your competitors?
JC: It is not a net positive at this point because we are able to acquire and maintain client balances. The lower those short-term rates are, the more challenging it is to generate revenue against those balances. That has historically been, not just for MF but for all FCMs, a major revenue source. It has made it more of a challenge and much more of a risk management responsibility to manage the gap between the liability and the asset that you put against it. We work hard at it, think about it a lot. Because we are a global firm we are not restricted to the menu of opportunities in the United States; that is one of our competitive advantages and we are doing reasonably well for such a low-interest-rate environment. But I have heard a lot of people say that firms like ourselves represent a call on interest rates. If short-term interest rates start rising — which I don’t expect, by the way — anytime in the foreseeable future then we benefit pretty enormously from that increase in rates. But in the meantime we have to be actively pursuing on a global basis the opportunities that allow us to use those credit balances profitably but wisely, and carefully protect the firms and our clients.