CME creates insurance fund for farmers and ranchers
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WASHINGTON, Feb. 3- CME Group Inc. announced the launch of a $100 million fund to rebuild market confidence after the collapse of MF Global Holdings Ltd. The Family Farmer and Rancher Protection Fund is designed to provide further protection of customer segregated funds for farmers and ranchers who hedge their business in CME Group futures markets.
“In light of the recent MF Global failure, in which a clearing firm violated CFTC regulations and misused customer monies that should have been kept segregated, CME Group is adding this extra security measure to protect the country's food producers who are using CME Group futures markets to hedge their crops and livestock that feed the world,” according to the exchange operator's announcement yesterday.
Farmers and ranchers use futures to determine crop prices. Those with accounts in MF Global's Futures Commission Merchant (FCM) lost potentially billions of dollars in funds after the broker-dealer collapsed. Investigators are attempting to locate $1.2 billion in missing funds.
CME Group, also responsible for overseeing MF Global's activity, runs the Chicago Mercantile Exchange and the Chicago Board of Trade, the world's largest center for trading agricultural futures contracts. The exchange operator announced its fresh attempt to restore confidence to the market yesterday with the Family Farmer and Rancher Protection Fund.
The fund is expected to be in effect by March 1, 2012. Under the fund, farmers and ranchers using CME Group products will 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. If losses in a future failure total more than $100 million, participants will be eligible for a pro-rata share of the fund, up to $100 million. This new fund is expected to be backed by an insurance policy and will not be available retroactively.
"The fund announced today is the first step in what will be a series of enhancements to industry customer protection mechanisms,” said CME Group Executive Chairman Terry Duffy. “The remaining steps are ones that we will work to develop an industry consensus on. Among the areas we look forward to exploring are stronger rules regarding custody of customer funds, firm-level internal controls and insurance for market participants."
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