Other FCM voices…
FM: What has been the long-term impact of MF Global on business? Volumes are down this year — how much of that do you attribute to the MF Global and PFG failures?
Nicolas Breteau: There’s no doubt that the failures of MF Global and PFG have cast a cloud over the futures industry, but they also prompted customers to renew their vigilance and ask more questions of their brokers. That’s the type of side-effect that can only mean good things for the industry in the long-term.
While there certainly is work to be done to restore confidence, the exact extent to which we can blame the fall in volume on MF Global and PFG is minimal. Volumes are down industry-wide across a variety of markets and brokers are being forced to find new ways to profit. Newedge has remained competitive with our agency-broker model and we have even gained market share in several markets. For several of our commodities products, we’ve actually seen an increase in overall volume.
I think the more realistic issue affecting volumes is changing market conditions, and the broad range of national and international issues facing the industry today. Over the years, Newedge has proven itself more than capable of adapting to changing conditions and regulatory climates. So, we’ve weathered the storm better than some of our competitors.
FM: Grade the industry and regulatory reaction: FIA, NFA, CME Group and the CFTC. What did they do well and what did they do poorly?
NB: I believe the FIA and all these regulators have acted in a timely and affirmative manner in endeavoring to restore investor confidence in the futures industry, and we applaud these important efforts. That being said, I believe the most important measures instituted by the NFA and CME have been those requiring daily reporting of segregation calculations and greater accountability by FCMs to remove significant portions of their residual interest, or “top up,” from customer balances. We also supported all of the early recommendations by FIA regarding best practices around FCM handling of customer funds.
While we have not finished our internal review, we also find much to agree with in the recent CFTC proposals regarding customer protection, although we have a real issue with efforts to apply LSOC to futures through the backdoor – which we believe this proposal tries to do — let alone the LSOC proposal generally as applied to cleared swaps. Let’s be frank: Applying LSOC to futures would not have helped a single customer at MF Global or a single customer at PFG. What LSOC does do, however, is to unfairly transfer the burden of evaluating an FCM from its customers to fellow clearing members at a clearing house who are less able to conduct such evaluation, let alone to potentially penalize customers who have chosen a more responsible broker (perhaps even at a the cost of paying higher commissions for such responsibility) in the first place.