A U.S. futures regulator this week urged Congress to boost protections for futures customer funds, weeks after the revelation of a $200 million shortfall at bankrupt futures brokerage Peregrine Financial Group renewed calls for tougher safeguards.
Bart Chilton, a Democratic Commissioner at the Commodity Futures Trading Commission (CFTC), asked top lawmakers to create a futures customer insurance fund to backstop customer losses if a brokerage fails.
"I respectfully urge you to approve a futures customer insurance fund," Chilton said in a letter to Senators Debbie Stabenow, Pat Roberts and Congressmen Frank Lucas and Collin Peterson, who head the Senate and House agriculture committees that oversee the CFTC. "While such a fund may not have been needed in the past, it is apparent that one is needed now."
Some lawmakers have expressed interest in the creation of such a fund. However, in a presidential election year, it is unclear whether a bill to create it could get enough votes to pass the Democratic-led Senate and the Republican-led House.
And futures industry experts say that to appeal to futures traders, the fund would need to be so big that it might be too costly to be beneficial.
Calls to bolster futures customer protection have reached a fever pitch since the collapse of PFG earlier this month, with the futures industry still jittery after the failure of MF Global only nine months ago.
PFG CEO Russell Wasendorf Sr. was arrested earlier this month after he confessed to doctoring bank statements to make regulators think his futures brokerage had nearly twice the assets it did, leaving customers with an estimated shortfall of over $200 million.
The fraud, which he says spanned two decades, is now being probed by the Department of Justice and the CFTC, which brought a lawsuit against the firm earlier this month.
A futures fund might be modeled on the Securities Investor Protection Corporation, which guarantees customer securities investments up to $500,000 in the event a brokerage firm collapses.
It could also take a cue from the Federal Deposit Insurance Corporation (FDIC) which currently guarantees banking customer funds up to $250,000 per insured bank.
MF Global Trustee James Giddens recommended the creation of a similar fund in a report to the U.S. Bankruptcy Court in Manhattan in June.
MF Global filed for bankruptcy on Oct. 31, after investors and customers became rattled over the firm's $6.3 billion bet on European sovereign debt.