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

What the experts think about MF Global

FM: What does the industry need to do to return customer trust to the process of segregated funds? 

Hehmeyer: It needs to clarify the sanctity of customer segregated funds in the rules and regulations of the Commodity Exchange Act and (CEA) the bankruptcy laws. That is not easy but it really needs to happen.

Grede: I’ve been a big believer in the system of customer fund segregation throughout my career. But, I have unfortunately found that once we are beyond the parameters of CFTC jurisdiction, other rules and laws seem to interfere with the traditions of the futures industry. Customers are not as well protected in the bankruptcy process as they thought they were.

The time has come for the futures industry in the United States to create a customer protection fund. I know all the arguments against it as far as imposing additional costs on an already struggling industry. But the costs of not doing anything are far greater than the cost of restoring confidence in the futures business.

Johnson: The ultimate fallout from MF Global is yet to be seen. Maybe it will fade into a distant memory, an aberration that rarely occurs. Or, it could loom large, especially with corporations and pension funds where “fiduciary duty” will not allow the danger to be ignored. Absent a change in the custodianship of customer funds, we only can wait and worry.

Ron Filler: The recent MF Global bankruptcy has raised a number of regulatory issues that the industry as a whole, both domestically and globally, must address and resolve. One of the most fundamental protections underlying the CEA and related CFTC regulations involves customer assets. It is of critical importance that the global regulatory framework provide the greatest customer asset protections.

Chris Hehmeyer is a 35-year industry veteran who currently is serving as the non-executive chairman of the board of the National Futures Association.

Fred Grede currently is serving as bankruptcy trustee to Sentinel Management Group. Formerly, he was chief executive at the Hong Kong Exchange (HKEx) and executive vice president at the Chicago Board of Trade. 

Philip McBride Johnson is a former chairman of the Commodity Futures Trading Commission (1981-1983) whose name is part of the 1981 Shad-Johnson Accord. After serving in government, Johnson practiced law with Skadden Arps, retiring in 2010.

Ron Filler is director, Center on Financial Services Law at New York Law School. Filler previously was the managing director in the Capital Markets Prime Services Division at Lehman Brothers. He has spoken at hundreds of industry conferences and seminars during his more than 30 years in the futures and derivatives legal fields and has taught several different courses as an adjunct professor of law.

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