FM: What has been/will be the impact to the regulatory structure?
Hehmeyer: People have come to a realization as to how all this stuff works. There is good and bad to that. In some ways [the regulatory impact] remains to be seen. The things that need the most attention are the bankruptcy laws, particularly with regard to joint FCM/broker-dealers. It will take huge efforts to change something like bankruptcy laws surrounding a failed FCM. I can only hope that the impact on decision makers is great enough to cause action, because there are things that need to be changed.
The vast majority of seg funds are very, very safe. People are more focused on what the risks really are than in the past and that is a small silver lining. The issue of the customer money being unequivocally in front of any other creditors obviously needs to be clarified. The situation of two trustees arguing over whether the creditors are in front of the customers or not speaks for itself — it needs to be clarified. The whole idea is that the customer money goes to the customers first and then the creditors argue over what is left. That needs to be one of the issues addressed.
Grede: I doubt that we will see any impact on the regulatory structure, perhaps some new rules or some changes in procedures. But all of our regulators, the CFTC, [Securities and Exchange Commission], [National Futures Association] and designated self-regulatory organizations do a very good job.
I don’t see a better system out there.
Johnson: On these pages within a few days after the MF Global revelation, I suggested a structural “fix” that would place all customer funds with a separate, CFTC-regulated central repository that conducts no other lines of business. Understandably, the industry looked for less dramatic changes such as heightened surveillance and enhanced auditing. The question is whether such measures — which leave customer funds at risk of future losses because of broker error (remember, MF Global collapsed over a long weekend and shortly after an audit by the CME Group) — will restore customer confidence and avoid a flight to other venues.