CME Group announced on Feb. 2 that it will establish a $100 million protection fund specifically for farmers and ranchers that hedge through CME’s futures markets.
Set to launch at the beginning of March, the Family Farmer and Rancher Protection Fund will protect farmers and ranchers up to $25,000 for individual accounts, and cooperatives up to $100,000 in case of any failure. Should there be a failure of more than $100 million, each party will qualify for a pro rata share of a maximum of $100 million.
The fund is clearly a response to the MF Global crisis but won’t aid those farmers and ranchers still waiting to be made whole by MF Global.
Craig Donahue, CME Group, Inc. CEO, said they decided to create this fund to restore confidence in the markets, especially for the farmers and ranchers, in light of the recent incidents surrounding MF Global.
“Many have been hurt by MF Global’s bankruptcy,” CME Group Executive Chairman Terry Duffy said in a press release. “Though all the facts are not yet in, we do know our industry needs to focus on enhancing protections for customer segregated monies held at the firm level. ... In the meantime, we believe this targeted first step is important to reassure hedgers so they can appropriately manage their risks and avoid business disruptions.”
MF Global filed for bankruptcy on Oct. 31, after a sale could not be completed due to a shortfall in customer segregated funds. So far, approximately 72% of customer funds have been returned. The trustee has estimated the shortfall at $1.2 billion since mid-November but recently revised the estimate to $900 million.
“One of the things that we brought forward on this proposal, and I felt very strongly about it, was this is a constituency that basically started these businesses way back when, and the world relies on these particular producers of products, especially of food, to feed the world,” Duffy said during CME Group’s Q4 earnings call. “It’s one of the great exports of the United States throughout the world. ... We felt it was critically important to give them an additional comfort zone.”
Some brokers, however, do not see this fund as a substantial protective measure. Andrew Shissler, with Roach Ag. Marketing, Ltd. in Downers Grove, Ill., says the fund does not cover enough. “It sounds worthless to me,” Shissler said. “I guess it’s not surprising that you would hear something like that (after the downfall of MF Global), but it’d be nice if they would’ve backed the $2 million to 3 million that’s missing, not the $25,000.”
Paul Georgy, president and CEO of Allendale Inc., believes the fund, though somewhat lacking, presents an optimistic outlook. “It’s a good thing and it’s a start, but it’s not enough,” said Georgy, all of whose clients clear through the CME Group. “It’s a good gesture, anyway.”