Billy Hunt is a veteran Chicago trader who specializes in the riskiest type of options deals. Yet it's the supposedly safe money in his brokerage account that keeps him up at night.
A year after the collapse of MF Global cost him $1.9 million, Hunt has made a full comeback and today trades on CME Group's open-outcry floor exactly as he has for the last quarter of a century. He still has night-time worries about the $17.5 million in collateral that he keeps at his brokerage, though.
"The risk is still there," said Hunt, 59 and dapper in his bright green trading jacket from his post behind the soybean options pit, where he sells call contracts that expose him to unlimited losses. "Nothing's changed."
It's a common sentiment in the U.S. futures industry, where many say everything is different and yet little has changed since the Oct. 31 failure of the giant brokerage and the $1.6 billion hole it blew in customer accounts.
Trading is down. Market participants worry that hundreds of pages of new and proposed rules do little to safeguard customer money, and will pinch already razor-thin brokerage profits. Some say regulators need to crack down harder on existing rules.
And the stakes are rising. With new regulations pushing over-the-counter swaps onto regulated venues, clearinghouses that already handle contracts valued at more than $2.5 trillion each day are set to take on even more business.
Industry leaders say they've done a lot to exorcise the lingering ghosts of MF Global, including requirements that CEOs sign off on big drawdowns of customer money, and beefed-up auditing.
"Customers are in a better place today," CME Executive Chairman Terrence Duffy told Reuters on Monday. "There are a lot of new processes in place that have really shored up the system."
Or, as Chris Hehmeyer, chairman of the Chicago-based National Futures Association, put it: "It doesn't feel safer. But it is safer."
Futures brokers are required to wall off customer money from their own, and traders have walked away whole from dozens of defaulting futures brokerages in the past, including giants Refco and Lehman.
MF Global and Peregrine shook the industry because their failures made clear that customer money can disappear faster than you can say "Boo".
Trading at CME Group Inc, the biggest operator of U.S. futures exchanges, fell 26 percent last quarter from a year earlier. Duffy told investors last week that macroeconomic factors and the threat of the "fiscal cliff" are keeping investor cash on the sidelines.