--Aspects of futures industry's self-regulatory system need
examination, Lukken says
--Audits didn't catch alleged lengthy fraud at Peregrine
Financial Group
--Time, increased transparency are needed for customer
confidence to be regained, Lukken says
(Updates throughout with additional comments from FIA's Lukken,
beginning in first paragraph.)
By Jacob Bunge
CHICAGO--The U.S. futures industry's method of regulating itself
needs rethinking after a second scandal rocked the sector in less
than a year, the head of the business's main lobby group said
Wednesday.
Walter Lukken, head of the Futures Industry Association, also
said auditors must be able to electronically confirm balances of
accounts that hold futures traders' funds "at any time," to provide
stronger safeguards against client losses.
"Clearly, doing nothing is not an option" after the failures of
Peregrine Financial Group Inc. and MF Global Holdings Ltd. left
customers of both firms separated from their money, Mr. Lukken said
in remarks at an industry event in Chicago.
Peregrine filed for bankruptcy protection last week after its
chief executive, Russell Wasendorf Sr., attempted suicide and
revealed an apparent 20-year fraud, with about $215 million in
client funds missing, according to authorities. MF Global collapsed
in October 2011, and about $1.6 billion is estimated to remain
unreturned to that firm's customers, which included farmers, asset
managers and floor traders.
Federal futures-market authorities rely on industry-funded,
self-regulatory organizations to police market activity and examine
brokers. Wednesday, Mr. Lukken said aspects of this system needs
re-evaluating, specifically methods used to parse futures brokers'
books.
"Clearly, they weren't doing the right things to uncover this,"
Mr. Lukken said, referring to auditors charged with examining
Peregrine's accounts.
Mr. Lukken said, however, that it isn't realistic to look to the
federal government to take on the responsibilities, given
constraints on securing funding.
Prior to leading the FIA, Mr. Lukken in the past served as
acting chairman of the Commodity Futures Trading Commission, the
government agency that supervises exchanges and clearinghouses.
Mr. Lukken said the FIA was evaluating the possibility of
throwing its support behind developing an industry-wide insurance
fund to cover such losses, though such a structure would need to be
"actuarially sound." The idea has been floated since MF Global's
collapse, though critics have said such a fund isn't realistic
given the size of the futures market.
Time and increased transparency are needed for the futures
business to regain trust lost in the Peregrine and MF Global
scandals, Mr. Lukken told reporters following his remarks.
Write to Jacob Bunge at jacob.bunge@jacob.bunge@dowjones.com
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