August 9, 2012
Last November, in the wake of the MF Global debacle, I called for a futures insurance fund. It made no sense to me that banking customers had insurance (up to $250,000) through the Federal Deposit Insurance Corporation (FDIC) and that security customers had similar protections up to $500,000 through the SIPC Fund. The support for such a futures insurance fund, at the time, was essentially zero. Nobody said they liked it. A few folks said they didn't like it. Perhaps it would only encourage risky behavior by firms if they knew there was insurance, one Member of Congress suggested to me. That's a good point, which is why such a fund (if it were to exist) should never pay out for trading losses or losses as a result of a downturn in the economy. Some suggested, without much detail, that such a fund for futures customers would be excessively expensive. I don't agree, and ask those who lost money if they would have wanted such a fund and there will be unanimity support of such a concept.
While I kept discussing the need for the fund, hardly anyone said "boo" about it. Then in July came the collapse and apparent fraud of Peregrine. Hundreds of millions of dollars of customer money should never go “kaput.” Now, it seems that this idea for a futures insurance fund has some traction. However, in order to actually get us moving down the road to a new law that provides for such a fund, I am today, putting forth a proposal for how Congress might craft such a new law. Here it is:
Futures Investor and Customer Protection Act (“FICPA”) Proposal
Some nine months after the downfall of MF Global (“MFG”), many MFG futures customers are still waiting to be made whole while MFG securities investors were entitled to quick and efficient payouts by the Securities Investor Protection Corporation (“SIPC”). My proposal, the Futures Investor and Customer Protection Act (“FICPA”), would merely seek to extend the already existent SIPC protections available for securities customers to futures customers. The call for adopting a SIPC-like protection fund for the futures markets must be answered quickly: over $35 billion in futures customer property has been exposed to insolvency since the Financial Crisis. FICPA, and the Futures Investor and Customer Protection Corporation (“FICPC”) it would create, would provide a safeguard fund for customers affected by FICPC involvement. By drawing on an existing blueprint, the creation of FICPC would be a relatively simple task for legislators and FICPC administrators. This would help remedy the present crisis of confidence in the futures markets in the wake of the fall of Peregrine Financial Group and MF Global. The costs to fund and administer FICPC would be minimal relative to the benefits of enhanced customer confidence and protection. Here’s how my plan would operate:
So, that's the plan, Stan. Or at least, that is a plan, which is more than existed before today.
I look forward to a lively discussion about the proposal, and other proposals that might be forthcoming. The point is to go forward and provide better customer protection. I hope this proposal assists in that endeavor.
Last Updated: August 9, 2012