CFTC looks for ways to increase protection of customer funds

Participants of the recent Illinois Farm Bureau Marketers to Washington trip met with CFTC representatives and attended a portion of the public roundtable.

Dan Grant

Published: Aug 20, 2012

The Commodity Futures Trading Commission (CFTC) recently hosted a public roundtable to discuss additional customer protections for futures commission merchants.

CFTC hosted the event in the wake of two major scandals involving the misuse and disappearance of nearly $2 billion in customer funds.

MF Global filed for bankruptcy last fall after an estimated $1.6 billion in customer funds disappeared. More recently, Peregrine Financial Group filed for bankruptcy after the firm’s founder and CEO, Russell Wasendorf Sr., admitted he stole more than $200 million in customer funds over a 20-year period.

Participants of the recent Illinois Farm Bureau Marketers to Washington trip met with CFTC representatives and attended a portion of the public roundtable.

“The futures industry has sort of been turned upside down (in the wake of the scandals which shook farmer and investor confidence in the futures market),” said Doug Leslie, senior counsel in the office of legislative affairs at CFTC.

“We’re not happy. We’re trying to figure out ways to increase the protection of customer funds and improve things.”

CFTC is working to get back money customers lost. An estimated 90 to 100 percent of funds lost in the MF Global debacle could be returned to customers.

CFTC also has tightened requirements on the use of customer funds. There was a proposal at the public roundtable to start a customer indemnity fund as well.

In other news at CFTC, it appears the commission will not impose any type of trading halts during the release of key USDA reports.

Major exchanges, including the CME Group, have expanded hours and now offer trading during the release of crop reports.

Graham McCall, attorney-adviser for CFTC’s Division of Market Oversight, noted CFTC must observe real market effects before it would consider imposing market halts.

“Even if we halt trade here (in the U.S. during the release of crop reports), people still could trade overseas,” McCall said. “It mitigates the effect.”

CFTC has noticed spikes in trade volume when reports are released. It will continue to conduct surveillance to see if any trading activity suggests possible information leaks prior to release of the reports.

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