U.S. Commodity Futures Trading Commission (CFTC) member Bart Chilton issued a statement today supporting a futures insurance fund. The statement comes after MF Global announced it had reached a settlement that would return $500 to $600 million of customer funds.
MF Global has admitted to using at least $700 million in customer funds to cover liquidity shortfalls in highly public scandal dating back to October 2011.
Chilton’s statement comes just one day after the announcement of MF Global’s liquidation:
I’m pleased with today’s announcement that commodities customers are getting back a little more of what they lost in the MF Global debacle. I appreciate the Trustees’ work to that end. The fact remains, however, that futures customers have not been made whole (and securities customers will have a surplus). This just further underscores the need for a futures insurance fund.
The Futures Insurance and Customer Protection Act that I have proposed Congress consider would offer assurances for futures customers who get fleeced when an MF Global-like failure or a Peregrine Financial Group-like fraud takes place. There are solid models for such a fund in the securities and banking worlds. Why not futures?
Chilton continues by anticipating arguments that U.S. regulation is too under-resourced to establish a futures insurance fund:
Such a fund would not create a big new bureaucracy in Washington. On the contrary, it can be done with a minimal staff and a minimal budget. It’s a small price to pay to protect honest investors who stand the chance of getting ripped off by the unseemly dealings of a few bad actors.
The persistent infighting between MF Global trustees charged with returning customer funds, as well as the projected seven months they will require to return such funds, perhaps bolsters Chilton’s case. It will be difficult, though, to push the case for a futures insurance fund until after fiscal cliff talks are resolved.