The National Pork Producers Council has urged Congress to bolster confidence in the futures market in the wake of the MF Global bankruptcy pointing out that pork producers depend on risk-management tools, including futures contracts, to deal with the volatility in feed grain and hog prices.
According to a Reuters report, investigators are still searching for hundreds of millions of dollars of customer funds that CME says were improperly siphoned off in the bankrupt brokerage's final days to plug its escalating liquidity needs.
In written testimony submitted 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 and were stunned to learn in early November, when the clearing broker filed for bankruptcy, that their futures accounts were frozen and funds were “missing.” (As much as $1.2 billion of customer funds may have been comingled with MF Global money and used to buy risky European debt.)
Pork producers who produce at least 20 percent of U.S. hogs had funds with MF Global. 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.
According to the Reuters report, the drama over the meltdown of MF Global pivots around a clash between two veteran traders who rose from relatively humble roots to the very top of the futures-trading business.
One is Jon Corzine, the bankrupt firm's former CEO who recently testified in Congress about the mystery surrounding some $1 billion in customer money that vanished from MF Global before it failed. The other is Terrence Duffy, the chairman of CME Group, where MF Global did most of its trading.
At stake is not only Corzine's reputation - and whether his career on Wall Street and in politics comes to an ignominious ending - but investors' trust in Duffy, the CME and the U.S. futures industry, which is largely self-regulated.
Corzine and Duffy barely know each other, but their businesses were enmeshed in the clubby futures trading world. The CME made money from MF Global's trading, and was supposed to watch for violations of rules designed to protect investors.
When MF Global collapsed and clients grew angry both at Corzine's firm and at Duffy's exchange, Duffy launched a public attack on Corzine at the congressional hearings.
The plain-spoken CME boss alleged that Corzine may have known of improper use of client money.
NPPC raised a number of questions in its testimony about the MF Global situation:
• Are there mechanisms that can 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 a number of possible ways to prevent customer futures accounts from being compromised, including:
• 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.
• Require other financial tests and additional audits of brokers and dealers by governmental and non-governmental entities.
Source: NPPC, Reuters