4 Nov 2012 - Get Your House in Order

Congress still has a lot of unfinished business before the end of the year but they’re not alone in unfinished business. It seems to me the futures industry still has some important unfinished business and that is fixing the problems that we have seen in the past year.

While kids were out ‘trick or treating’ on Halloween, there were several thousand people who found no treats at all, but only the grim reminder of their disappearing money. It was a year ago on Halloween that the heavyweight brokerage firm MF Global filed bankruptcy, leaving 36,000 commodities customers who put their trust in MF Global and cleared their trades through that brokerage firm, with empty accounts, their money gone. Money that, under law, must be held in a segregated customer account, but money that somehow, was mysteriously moved out of those accounts into the MF Global investment fund and simply disappeared.

I was reminded of that unhappy ‘anniversary’ in an article in the Wall Street Journal a few days ago headlined “Corzine Searches for What’s Next”. The article discussed the “plight” of Jon Corzine, the former head of MF Global who still insists he doesn’t know who moved the money or where it went and denies that he had anything to do with it. He is fighting several civil lawsuits filed by the customers who lost their money, but he has not ben charged criminally and the Commodity Futures Trading Commission still has taken no action. He is quoted in the story as saying he is very concerned that he could lose his license to work in the securities industry. I didn’t see any mention of concern for MF Global customers who, one year later, are still waiting to see a lot of their money, including some who have told me they don’t think they will ever see it again. I doubt they feel any sympathy for Mr. Corzine.

But there is much more to this story. The futures industry said it would take the necessary action to make sure we would not experience another MF Global situation. Yet, six months later it happened again with the failure of the Peregrine Financial Group in Iowa and once again, thousands of customers lost millions of dollars because the industry couldn’t enforce the rules dealing with segregated customer funds.

Is it any wonder that during the last quarter, trading volume at the CME Group dropped 26%. A part of that decline had to be the loss of trust by traders in the futures industry and its ability to police itself.

As I’ve said many times, I feel strongly that we need these markets as risk management becomes more critical for producers. But we also need to be able to trust that the rules will be followed and our money is safe. So National Futures Association and futures markets, you have some unfinished business. Time to get your house in order.

My thoughts on Samuelson Sez.