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Futures Industry Leaders Discuss Insurance Fund

Source: WSJ

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Posted on 17 Aug 2012 by Neilson

CME GroupSenior officials from CME Group Inc. on Thursday met with customers and futures industry leaders to examine the potential for establishing an insurance fund to safeguard traders.

The collapse of MF Global Holdings Ltd. and Peregrine Financial Group Inc. has triggered calls from some regulators for protection similar to that afforded to securities traders in order to boost confidence in the futures market.

Terry Duffy, executive chairman of CME, was among the participants at the meeting in Chicago, along with a top official from the Futures Industry Association, the main U.S. trade body for the sector. It also included representatives from brokerage firm RJ O'Brien and the Commodity Customer Coalition, a group formed following the October 2011 collapse of MF Global.

The talks come as CME, the world's largest futures exchange operator, has privately shown signs of softening its prior stance against setting up such an insurance policy, according to people involved in the discussions.

CME also oversees the industry's biggest participants as a regulator, and has argued that creating such a fund would be overly expensive. CME has warned that such a fund could also create new risks for the business, which farmers, power generators and airlines use to construct financial protections against shifts in the price of key commodities.

A CME spokeswoman confirmed the attendance of Mr. Duffy and Chief Operating Officer Bryan Durkin at the meeting, and said the company was "open to discussing any potential solution."

"We think the suggestions for an industry-funded insurance program would certainly boost confidence but need to be balanced against known negatives," said the spokeswoman.

"It is likely to be cost prohibitive and ineffective given the size and scope of the accounts in our business, and may encourage the 'moral hazard risk' that comes into play when customers feel they don't need to worry about their choice or stability of their [brokerages]."

Bart Chilton, a commissioner with the Commodity Futures Trading Commission, visited Chicago last week and discussed his own proposal for a futures insurance fund with officials at CME and the National Futures Association, the industry's self-regulatory body.

"I sensed a real willingness not to simply dismiss the matter as too expensive, but to look deeper and see what folks think makes sense," Mr. Chilton said in an emailed response Thursday. "I have my proposal and I'm working with people, including the Hill, to move the issue forward." He declined to discuss specifics of the meetings last week.

A representative for the Commodity Customer group had no immediate comment. A spokeswoman for the Futures Industry Association confirmed Thursday that Walt Lukken, the organization's chief executive, would dial into the meeting from Washington, D.C. "As a trade association for this industry we're happy to participate in a dialogue on this issue," she said.


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