Industry addresses customer confidence at Expo

FIA recap

Hurricane Sandy held down attendance at this year’s Futures Industry Association (FIA) Expo in Chicago that concluded Nov. 1 and much of the discussion at the event still surrounded regulations yet to be implemented, specifically the final stages of regulations on cleared swaps.

Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler was one of weather related no-shows but provided a taped presentation to those in attendance. Most attendees had already left the room but Gensler’s remarks had already been made public and the most important announcement — the CFTC delaying the deadline to implement the LSOC rules from Nov. 8 to Nov. 13 — was known.

LSOC, which stands for “Legal Segregation with Operational Commingling,” was the focus for many of the panels and discussions at the two-day event along with the more general focus on restoring customer confidence in the industry after the MF Global and Peregrine Financial Group failures that occurred since last year’s expo.

The basic goal of LSOC is take make sure no cleared over-the-counter (OTC) customer account is put at risk from a failure of another customer. While futures style customer segregation is supposed to protect customer money from a failure of a broker, customers still had risk if another customer suffered losses in their account that went beyond the excess capital the broker held in the pooled customer segregated account.

This led some of the panelists to suggest that the LSOC model could be extended to futures at a later time. However, judging from the experts on the “One week to LSOC” panel, no one is in a hurry to expand what everyone described as an extremely complex and labor intensive rule — the complexity of which may lead to more problems than it solves.

At the keynote lunch on Wednesday, Rep. Randy Neugebauer (R-Texas) spoke about the role Congress has taken in investigating the MF Global bankruptcy. Although he said his office had hoped to publish their official report in time for the one-year anniversary of the firm's demise, it was pushed back. He expects the results to be made public in about two weeks.

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