CHICAGO – The Chicago Mercantile Exchange (CME) Group recently announced plans to establish a $100 million fund designed to provide further protection of customer segregated funds for US family farmers and ranchers who hedge their business in CME Group futures markets.
Due to the recent MF Global bankruptcy, in which a clearing firm allegedly violated Commodity Futures Trading Commission regulations and misused customer monies that should have remained segregated, CME Group plans to add this extra security measure to protect US food producers who are using CME Group futures markets to hedge their crops and livestock.
CME indicated that US farmers and ranchers who had accounts with MF Global have received most of their money, but are still owed about $100 million, Reuters relayed. The $100 million is believed to be part of MF Global customers' $1.2 billion in funds that remain missing after the bankruptcy of the broker. This is the first time the amount still owed to farmers and ranchers has been publicized.
Expected to be in effect by March 1, the Family Farmer and Rancher Protection Fund will allow farmers and ranchers using CME Group products to 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 also will be eligible for up to $100,000 per cooperative.
Participants will be eligible for a pro-rata share of the fund, up to $100 million, if losses in a future failure total more than $100 million. Not available retroactively, this new fund is expected to be backed by an insurance policy.
"Many have been hurt by MF Global's bankruptcy," said Terry Duffy, CME Group executive chairman. "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.
“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," he added.
CME Group has been committed to working with its customers and all other stakeholders from the beginning of the MF Global failure to strengthen protections of customer segregated funds held at the firm level, said Craig Donohue, CME Group chief executive officer. "The fund announced [Feb. 2] is the first step in what will be a series of enhancements to industry customer protection mechanisms,” he added.
The Family Farmer and Rancher Protection Fund will serve as extra customer protection in addition to current CFTC regulations and CME Group exchange rules.