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

Restoring confidence in the post-MF Global world

Farmers’ & ranchers’ fund

In February, CME Group announced the Family Farmer and Rancher Protection Fund as a first step to restore customer confidence in the futures markets after MF Global’s bankruptcy. It is a $100 million fund intended to provide farmers and ranchers “up to $25,000 per account in the case of losses resulting from the future insolvency of a clearing member or other market participant.”

According to Bryan Durkin, chief operating officer at CME Group, the fund is explicitly for farmers and ranchers because of their role in feeding the country and their use of futures markets to manage risk. “Those are the folks most impacted in terms of releasing collateral to get themselves back in operation,” he says.

The fund had to be drawn upon just five months later when PFG went under. As of press time, CME Group was in the process of reviewing applications from farmers and ranchers who had been PFG customers, and Durkin expects benefits to be paid out by the fourth quarter.

Although the industry has responded with a broad range of changes to improve customer safeguards, some individuals see room for continued improvement. 

One area that has received considerable attention is the idea of an insurance fund similar to what the Securities Investor Protection Corporation (SIPC) offers. “Everyone in the industry is open to it,” Corcoran says. “We see the value of it, but we don’t know what it may look like or what it may cost. People look at SIPC for the securities industry, but the securities industry is just so much larger than the futures industry in terms of transactions.”

Lukken says the FIA is committed to studying the issue of insurance. “The largest thing is we are shoring up the segregated model to improve it, and we hope to make more improvements over time. If we layer on an insurance product, then what are the benefits and costs to the customer of doing that?” he asks.

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