World Grain - January 2012 - 18

newsreview
Groups urge action following MF Global bankruptcy
WASHINGTON, D.C., U.S. — The National Grain and Feed Association (NGFA) and the North American Millers’ Association (NAMA) on Dec. 8 urged the U.S. Congress to take action following the bankruptcy of MF Global. NGFA said that returning 100% of customer-segregated funds and other property to their rightful owners should be the top priority of lawmakers, regulators, commodity exchanges and the trustee. The trustee responsible for identifying assets of MF Global’s commodity brokerage business continues to investigate the extent of the shortage that exists in supposedly customer-segregated accounts. MF Global ﬁled for bankruptcy protection on Oct. 31. NAMA also called on Congress to take action and limit futures market risk, exacerbated by the MF Global bankruptcy, to millers and other futures market participants. “Millers and other futures contract participants are experiencing a crisis of conﬁdence in the markets as a result of the MF Global situation,” NAMA said. NAMA pressed the point that segregated customer funds are sacrosanct and that millers and similar hedgers should be the ﬁrst in line when MF Global funds are disbursed. Changes recommended by NGFA and NAMA include: • Direct CFTC to immediately enact rules requiring customer segregated funds be kept in escrow accounts, in cash or very liquid government-backed instruments. • Afﬁrm that legislative intent underlying relevant statutes in this area call for the ﬁrst priority for funds from segregated accounts is they be distributed to the customers that deposited them. • Direct the CFTC to conduct an immediate audit, or the agency should request third party audited statements of all brokers and Futures Commission Merchants to ensure conﬁdence that customer funds remain segregated. • Study the creation of an industry insurance fund to cover commodity futures contracts. • Conduct a complete review of CFTC audit procedures. • Determine if it would be more appropriate to vest responsibility for holding and safeguarding customer funds in an entity other than exchanges’ clearing ﬁrms – such as the exchange itself or some other independent third party. • Determine if insurance provided through the Securities Investor Protection Corp. (SIPC) should be expanded to provide coverage for commodities, as well as securities. • Determine whether the commodity exchanges themselves should bear “some responsibility for customer funds lost as a result of a bankruptcy and/or malfeasance by a clearing member of the exchange.”

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World Grain - January 2012

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