CFTC Commissioner Details Plan for Futures Insurance

Date : 08/09/2012 @ 12:40PM
Source : Dow Jones News
Stock : Cme Grp. Inc. (MM) (CME)
Quote : 121.83  -0.06 (-0.05%) @ 8:00PM

CFTC Commissioner Details Plan for Futures Insurance

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--Commissioner Chilton puts forward plan for insurance fund

--Congress would have to approve the plan

--Some in industry have raised concerns about costs

WASHINGTON--Commodity Futures Trading Commission member Bart Chilton detailed a plan for an insurance fund for futures customers Thursday, after customers lost money in failures of two futures firms in the past year.

A shortfall in customer funds revealed at Peregrine Financial Group last month renewed calls for an insurance program for futures customers, but the plan still faces many hurdles, including getting legislation approved by Congress.

"I've put this proposal out there because we need to move this discussion forward and get a new law on the books to better protect customers," Mr. Chilton said in an email.

The fund, as Mr. Chilton outlines it, would be modeled on a similar insurance plan for securities customers and would be created by collecting fees from futures brokers "which would under no circumstance exceed 0.5% of the merchants' previous year gross revenue specific to futures."

The insurance would pay out up to $250,000 in the event that customer money was taken.

"This would help remedy the present crisis of confidence in the futures markets in the wake of the fall of the Peregrine Financial Group and MF Global," Mr. Chilton said in a draft proposal on the fund.

CFTC Commissioner Scott O'Malia said that the first priority should be creating the technology that would allow regulators to check on customer funds on a daily basis.

"First and foremost let's put in a technology solution to ever prevent fraud from creating the necessity of an insurance fund," Mr. O'Malia said on the sidelines of a meeting at the CFTC to collect ideas for ways to protect futures customers.

Similar calls for an insurance fund were made after the failure of MF Global Holdings Inc. (MFGLQ) last fall left a $1.6 billion hold in customer accounts, but many in the industry have opposed it.

At a congressional hearing last week, CME Group Inc. (CME) Chairman Terry Duffy warned that an insurance program could be cost-prohibitive.

Futures Industry Association President Walt Lukken said that the trade group is looking into the possibility.

The Commodity Customer Coalition, a group advocating for MF Global customers, put forth a different insurance plan at the hearing.

"We have to stop expecting the regulators to do their jobs and start offering customers protections when they do not," said John Roe, a spokesman for the group.

Write to Jamila Trindle at jamila.trindle@dowjones.com

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