Senate probes futures industry failures

Futures industry searches for solutions

Yesterday’s hearings of the U.S. Senate’s Agriculture, Nutrition and Forestry Committee titled “Examining the Futures Markets: Responding to the Failures of MF Global and Peregrine Financial Group,” had less fireworks than past hearings but perhaps a more serious tone.

The second panel, which included industry stakeholders and representatives of self-regulatory organization, detailed the various changes already made and offered additional solutions to safeguard customer segregated funds.

While the discourse was cordial, Committee Chair Debbie Stabenow (D-Mich.) made the point everyone seemed to understand, “The first time we heard it was an outlier and then it happened again,” referring to the MF Global and PFGBest scandals in which segregated customer funds were breached. “I can assure you that if it happens again people are going to be extremely upset,” she warned.

The first panel was a little more controversial as the two trustees in the MF Global Bankruptcy offered different opinions on whether former MF Global customers would be made whole. Oddly Louis Freeh, trustee for MF Global Holdings Ltd. who submitted written testimony but did not attend the hearings and represents MF Global creditors not customers, indicated he thought customers would be made whole, while MF Global Inc. Trustee James Giddens — who is responsible for finding  funds belonging to customers — disagreed. So far customers have received a little over 80% of their U.S. segregated funds and less if they held money in 30.7 secured accounts overseas.

Throughout the first panel, witnesses were asked if criminal charges were being sought in any of the recent scandals. In the case of MF Global, CFTC Commissioner Jill Sommers was pressed on whether she was satisfied with the Department of Justice’s involvement, which she eventually said she was.

Although most of the Committee was present and asked questions throughout the first panel, only Stabenow and Ranking Member Pat Roberts (R-Kan.) stuck around for the second panel, which included FIA President Walter Lukken, CME Group Executive Chairman Terry Duffy, National Futures Association President Dan Roth and Commodity Customer Coalition Co-Founder John Roe.

Written testimony from hearings.

Panel 1
CFTC Chairman Gary Gensler
CFTC Commissioner Jill Sommers
MF Global Holdings Trustee Louis Freeh
MF Global Inc. Trustee James Giddens
PFGBest Trustee Ira Bodenstein

Panel 2
FIA President Walter Lukken
CME Group Executive Chairman Terry Duffy
NFA President Dan Roth
National Grain and Feed Association Vice President Diana Klemme
Commodity Customer Coalition Co-founder John Roe

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