A point that is often missed in the coverage of MF Global is that this is a crime in progress and not merely a bad thing that happened that has to be cleared up. Every day that customers are not made whole the crime becomes worse and damage to the industry accrues.
Doug Bry and Ernest Jaffarian understand this. It is why they ran to represent Commodity Trading Advisors and Commodity Pool Operators (CTA/CPO) on the board of the National Futures Association. It is also why they wrote a 14-page memo to the NFA board detailing the damage done by the MF Global debacle and calling on the NFA to act to restore confidence in the industry of the end users who were most damaged by the MF Global affair.
What is clear from the memo is that Bry and Jaffarian care about the industry and respect the role the NFA has played over the years. That is not to say that they are not challenging ingrained interests on the board. Their analysis of what has occurred pulls no punches and calls some powerful organizations to task for their role in the mess and their efforts to serve their specific interests at the cost of former MF Global customers and the integrity of the industry.
If there is one message being sent in this memo it is that confidence in the industry has been shaken and can only begin to be restored by the industry fulfilling, belatedly, its oft cited creed that “no customer has ever lost money due to a failure of segregated funds.”
The memo states: “No promise or assurance for future safety will have much meaning or credibility unless the 38,000 [MF Global] customers get 100% of their money back.”
They understand that everyone in the industry loses if this isn’t resolved satisfactorily and resolved soon. That realization appears to be what is missing from so much of the official reaction to this mess. This is serious and real and requires action. Bry and Jaffarian must convince fellow NFA board members that whatever their affiliation is, whatever it costs to accomplish their goals, it is to their ultimate benefit along with everyone in the industry that end users don’t end up holding the bag.
In one sense it is too late. If every former MF Global customer is made whole tomorrow it won’t undo all of the damage. Firms have gone out of business; farmer and ranchers have not been able to make vital purchases for the season ahead putting their business in jeopardy; CTAs have lost incentive fees and more importantly customers. End users new to the futures industry brought in by the promise of the safety of our regulatory model, feel that they have been lied to. The bottom line is that this is not a one off event; it is an open sore that needs to be cauterized.
Back when some crazy dreamers from Chicago were promoting the notion of expanding the use of futures from its narrow agricultural niche into products essential for the allocation of capital in our economy, the financial heavyweights of the day dismissed them and missed out. Those bankers on Wall Street were protecting their wide margins and Chicago’s futures exchanges offered greater efficiencies in creating the modern financial futures market. If our industry does not make this right someone may emerge to take advantage of this.