CME creates $100 million fund to protect farmers

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Updated: March 4, 2012 8:12AM

The Chicago futures exchanges, working to repair market confidence after the MF Global collapse, Thursday announced a $100 million fund to protect agricultural customers from further problems at brokerages.

The money is available to U.S. family farmers and ranchers, groups that have been particularly harmed by MF Global. The fund is expected to start March 1, but no money will be available to MF Global victims.

CME Group Inc., owner of the Chicago Mercantile Exchange and the Chicago Board of Trade, called the fund an added security measure to protect food producers who need to hedge the value of their crops.

The MF Global bankruptcy on Oct. 31 and disclosure of an estimated $1.2 billion in missing customer money froze customers out of their accounts for weeks. Many since have had most of their funds restored, while others are waiting. The brokerage had an estimated 38,000 clients. Through a bankruptcy trustee, many have had about 72 percent of their funds restored.

Investigators have told the Associated Press that they know where most of the missing money is. Getting it, however, may be difficult because of foreign bankruptcy rules.

The lack of access to the cash has disrupted the lives of traders and businesses. Some have accused CME of exercising poor oversight over MF Global, one of its biggest customers.

CME, however, has said it was victimized by MF Global too.

“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,” said CME Group Executive Chairman Terrence Duffy.

He added, “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.”

Called the Family Farmer and Rancher Protection Fund, it will be backed by insurance and will reimburse farmers and ranchers using CME contracts up to $25,000 per account in the event of a brokerage insolvency. Cooperatives will be eligible for up to $100,00 per account and participants could receive pro-rated payouts if claims top $100 million.

MF Global has shattered confidence in the futures markets by underscoring that there is no overall customer protection fund analogous to what stock investors have through the Securities Investor Protection Corp.

Some MF Global victims have vowed to end their futures trading. Since the scandal broke, trading volume at CME has declined, but that could be due to many factors.

CME said Thursday that its January volume of 11.6 million contracts per day was down 5 percent from January 2010.

It also quantified some of the MF Global damage in its latest earnings, reporting a $30 million charge because of the bankruptcy during the fourth quarter. But the company’s profits remain healthy.

Overall, volume rose during 2011, allowing CME to report higher earnings. For 2011, the exchange owner booked a profit of $1.81 billion, nearly double the 2010 figure, on revenue of $3.28 billion. Revenue rose 9 percent from 2010.

CME reported an operating profit margin of more than 61 percent.