Congress urged to bolster confidence in futures market
WASHINGTON – Earlier this week, the National Pork Producers Council urged Congress to bolster confidence in the futures market after MF Global filed for bankruptcy. US pork producers depend on risk-management tools, including futures contracts, to deal with the volatility in feed grain and hog prices, according to the association.
In written testimony submitted for the record on Dec. 19 to the Senate and House agriculture committees and to the House Financial Services Committee, NPPC said most producers were unaware of their connection to MF Global. NPPC added they were shocked to learn in early November, when the clearing broker filed for bankruptcy, their futures accounts were frozen and funds were missing.
Up to $1.2 billion of customer funds may have been comingled with MF Global money and used to buy risky European debt, NPPC said.
US pork producers who produce at least 20 percent of hogs in this country had funds with MF Global. NPPC explained most, if not all, of them, however, did not deposit their funds directly with the clearing broker. They opened futures trading accounts with an introducing broker, which put the funds into MF Global.
During testimony, NPPC asked several questions about the MF Global situation:
- Can mechanisms be put in place to prevent another MF Global?
- Will customers be given priority in the bankruptcy proceedings to recover funds?
- Will producers whose funds were with MF Global be made whole?
- How will the transfer of funds from MF Global to new accounts with other clearing brokers be treated by the Internal Revenue Service?
- Will actions be taken to simplify and expedite claims to recoup funds?
NPPC also offered the following suggestions to prevent customer futures accounts from being compromised: Impose stiffer criminal and/or civil penalties for misuse of customer accounts; require brokers to obtain permission before using customers' funds for purposes other than customer transactions; extend to commodities exchange customers insurance similar to that provided to securities investors through the Securities Investors Protection Corporation; and require other financial tests and additional audits of brokers and dealers by governmental and non-governmental entities.