Better late than never

Better late than never is how the Commodity Customer Coalitions (CCC) responded to the Commodity Futures Trading Commission’s brief, filed on Wednesday Jan. 18, clearly stating that former MF Global Inc. customers have priority over all other claimants.

And it only took them just under 12 weeks to put that out. It came out the same day that CME Group, the National Futures Association and other self-regulatory organizations (SROs)  announced the forming of a committee to review how (SROs) can strengthen current safeguards for customer segregated funds held at the firm level in light of the MF Global bankruptcy. Perhaps it was something in the air.

For the CFTC it may have been a challenge to its relevance in the face MF Global Holdings Ltd. trustee Louis Freeh refusing to release certain documents to the agency earlier this month.

Think about that for a second. We are in the midst of one of the greatest scandals in our industry and the regulatory agency charged with policing futures markets gets told by the firm responsible to go blow. Don’t understand why the CFTC didn’t simply march into the office weeks ago and demanded the documentation.

The crisis reminds me of what would happen in the trading pit when an explosive bit of news comes out — be it an unemployment report or Federal Reserve auction out of line with expectations or some other shock — causing the market to spike rapidly in one direction or the other.

Every participant is looking for someone to make a market for them to get out of a position that is rapidly going against them but there is no one making a market. All the locals have put their hands in their pockets. You can’t blame them. If the whole world is looking to sell, no local is willing to be road kill as the market is destined to move several handles in matter of mere seconds.

When it was learned that the sale of MF Global broke down due to a shortfall in their customers segregated funds all bets were off—it was as if nonfarm payrolls came out -200K when everyone was expecting it to be +200K. Everyone wanted to sell but all the locals (industry leaders in this case) were making themselves scarce. When the shortfall in customer funds was announced the CFTC, NFA, MFA (Managed Funds Association), FIA (Futures Industry Association) and even the CME Group appeared to have their hands in their pockets.

As market participants looked to industry leaders to, in essence, make a market, those institutions were slow to act. This is particularly true of the CFTC whose decision to put this in the hands of the Securities Investor Protection Corporation (SIPC) and not fight for jurisdiction has made the process more difficult.

Posted on the CFTC’s web site is the agency’s missing statement: “The CFTC's mission is to protect market users and the public from fraud, manipulation, abusive practices and systemic risk related to derivatives that are subject to the Commodity Exchange Act, and to foster open, competitive, and financially sound markets.”

The commission should think about how they are fulfilling that mission in this crisis.

About the Author
Daniel P. Collins

Editor-in-Chief of Futures Magazine, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures in 2001 and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and futuresmag.com. Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.

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