From the February 01, 2012 issue of Futures Magazine • Subscribe!

Terry Duffy: Staring down his biggest challenge


FM: What are your other clearing member customers saying to you?

TD: I haven’t talked to a lot [of them]. I talked mostly to RJ O’Brien because they took the bulk of the accounts. I have been working with them to get the accounts moved over and to get people back in business. That was really my focus; it wasn’t more about what do we do next. …My focus has been on dealing with clients, dealing with the issue at hand. I haven’t gotten to what are the next steps other than what I said about bringing some of these separate accounts to the clearinghouse level. That would eliminate any potential for fraud at the FCM level and they would be protected. Would they be completely protected? No, because as you know, segregation works where if one rogue trader takes down the whole operation everybody is at risk. They would at least eliminate one of their risks, which is what happened at MF Global. That is something we should entertain. I have talked to end-user farmer/producers who have asked me if I would entertain that and I said I would because that is what they want.

FM: Some in the industry have recommended adopting a SIPC-type insurance program. What is your opinion on that?

TD: It should be something that we look at for smaller accounts [held by] the end-user agribusiness type of people that are hedging corn crops and livestock production. But to do a SIPC-type [program] for $158 billion, the premiums would be so astronomical that it would be very difficult.

FM: What about having segregated funds placed in a third-party repository?

TD: If there was a third-party custodial, that is something we would have to look into. I am not for it or against it; I would have to understand it more. I would have to see how the mechanisms work. I know how the mechanisms work at the clearinghouse level; I don’t know how they could work at a third-party custodial level because you are dealing with multiple exchanges [as well as] with accounts trading on foreign exchanges.

FM: Is this something that can derail the industry? Going forward what do you see for the industry?

TD: The industry has done a lot of good over the last 50 years. [It] educated a lot of people on the benefits of risk management; they understand the difference between capital formation and risk management now. As bad as this is I don’t think it derails the industry in any way, shape or form. Hopefully the monies will be returned to the MF Global participants who lost it. That should be everyone’s concern, but these are global markets that people need to manage their other businesses on and I don’t see that going away. If [the U.S. Government] didn’t have a liquid futures market, the cost of issuing U.S. debt would add to the taxpayers’ liability dramatically. These are critical markets, [and] people don’t understand what the fallout would be if they weren’t here. Milton Friedman said before he passed away that if we didn’t have futures markets today we would have to invent them. That is how critically important they are to the fabric of the global financial system.

I don’t want to [underestimate] how bad this event was, but I do believe the industry will move forward and continue to grow. The benefits truly outweigh one bad apple, and we had one bad apple in 75 years [that] has gone down this path.
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