Reuters: US Dollar Report: CFTC's Wetjen-Congress should explore insurance fund for futures

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CFTC's Wetjen-Congress should explore insurance fund for futures Nov 1st 2012, 17:41 Thu Nov 1, 2012 1:41pm EDT * Many questions about futures insurance fund -Wetjen * Mandatory fund would be expensive for users -CME's Duffy * National Futures Association head says analysis is needed By Tom Polansek CHICAGO, Nov 1 (Reuters) - Commodity Futures Trading Commissioner Mark Wetjen said on Thursday an insurance fund for futures traders is "worth exploring," raising the profile of a customer-protection concept that gained new life after MF Global failed one year ago. The futures industry has debated the merits of a government-sponsored insurance fund for futures traders, modeled after the Securities Investors Protection Corporation (SIPC), and an industry-sponsored bailout fund since MF Global's collapse revealed more than $1 billion missing from customer accounts. Neither response would prevent a broker's misuse of customer funds, as happened with MF Global. The brokerage, led by former Goldman Sachs chief and New Jersey Gov. Jon Corzine, failed after revelations that it had made a bad bet on European sovereign debt sparked a liquidity crunch. However, some type of insurance could help restore shattered faith in the industry, helping allay fears that money parked at futures brokerages is not safe, proponents say. Customer confidence took another hit in July when brokerage Peregrine Financial Group collapsed after its chief executive admitted to misappropriating customer money. "I think it's worth exploring, but there are obviously a lot of questions as to whether it would work," Wetjen said about an insurance fund on the sidelines of a futures industry conference in Chicago. "The right way to do it is to have Congress take it up and have a number of hearings and explore both sides and see whether that's the best policy or not," he said. "It would be nice if more was done, I think, in Congress to explore it. The real conversation has to take place there." CHILTON BACKS FUND Wetjen's comments lend some support to a campaign for an insurance fund by Bart Chilton, another of the five CFTC commissioners. Chilton told Reuters last week that he had been "a little bit disappointed" that his CFTC colleagues hadn't weighed in on the issue. "I think it's a gaping hole in a perfect customer protection regime, and it doesn't quite make sense to me" that it is not under active consideration, said Chilton, who proposed a $2.5 billion insurance fund earlier this year. Chilton has proposed extending already-existent SIPC protections available for securities customers to futures customers. Created in 1970 to help restore confidence to the securities markets, SIPC has authority to use its funds to pay back securities customers up to $500,000 per account when brokerages fail. The insurance, which is funded by member brokers, does not cover futures accounts. Instead, the futures industry seeks to protect customers by requiring brokers to wall off customer accounts from their own funds. Under Chilton's plan, the initial collection for the futures-industry insurance fund would be taken from a fee assessed on all futures commission merchants, which would not exceed 0.5 percent of the merchants' previous year gross revenue specific to futures. Chilton has said the fund would not be "excessively expensive." Yet, Terry Duffy, executive chairman of CME Group, said on Thursday that the cost of mandatory insurance "will be very prohibitive" for users. Speaking in a panel discussion at the futures conference, Duffy said FCMs should offer optional polices for customers. Congress will likely discuss the issue of an insurance fund next year when they take up the reauthorization of the CFTC, said Dan Roth, president of the National Futures Association. Congress will need an analysis of how much the fund will cost, he said at the futures conference on Wednesday. "Someone's got to figure out how expensive" it will be, Roth said. "The industry needs an independent analysis of that issue." Link this Share this Digg this Email Reprints

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