MF Global Bankruptcy Drives New Protections

In the wake of the MF Global scandal, CME Group is setting up a $100 million fund to provide further protection for farm and ranch customers.

Published on: Feb 2, 2012

MF Global, the market gift that keeps on giving, gets a new wrinkle this week with the announcement Thursday that the CME Group is establishing a $100 million fund. The money will "provide further protection of customer segregated funds for U.S. family farmers and ranchers who hedge their business in CME Group futures markets," says Bryan Durkin, chief operating officer and managing director.

In the wake of the MF Global bankruptcy, a lot of farmers and ranchers accounts were hit hard with many still going through a range of steps in an effort to recover lost cash. Durkin's letter to customers notes that the group is aware of the impact on farmers and ranchers.

The letter goes on to say: "In light of the MF Global failure, in which a clearing firm violated CFTC regulations and misused customer monies that should have been kept segregated, CME Group is adding this extra security measure to protect the country's food producers who are using our markets to hedge their crops and livestock that feed the world."

The new Family Farmer and Rancher Protection Fund, to be in effect by March 1, 2012, farmers and ranchers using CME Group products will be eligible for up to $25,000 per account in the case of losses resulting from the future insolvency of a clearing member or other market participant. Farming and ranching cooperatives are also eligible for recovery of up to $100,000 per co-op, according to the letter.

If losses pile up beyond $100 million - as they have in the MF Global situation - participants will be eligible for a "pro-rate share of the fund, up to $100 million." The new fund is expected to be backed by an insurance policy and will not be available retroactively.

In a press statement about the new fund, Terry Duffy, CME Group executive chairman says: "Many have been hurt by MF Global's bankruptcy. Though all the facts are not yet in, we do know our industry needs to focus on enhancing protections for customer segregated monies held at the firm level. CME Group is pleased to introduce this Family Farmer and Rancher Protection fund for America's farmers and ranchers to ensure they do not find themselves in a position similar to the first two weeks of the MF Global bankruptcy. We fully understand the need for a holistic solution to restore confidence in the marketplace and are actively working with the industry to develop recommendations. In the meantime, we believe this targeted first step is important to reassure hedgers so they can appropriately manage their risks and avoid business disruptions."

In the letter to customers from Durkin, he notes the fund is the "first step in what will be a series of enhancements that our industry will undertake to strengthen customer protections."

You can check out the official press release HERE.