CME Group announced on Feb. 2 that it will establish a $100 million fund designed to provide further protection of customer segregated funds for U.S. family 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.
Under the Family Farmer and Rancher Protection Fund, expected to be in effect by March 1, 2012, 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.
"Many have been hurt by MF Global's bankruptcy," said CME Group Executive Chairman Terry Duffy. "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. CME Group is pleased to introduce this Family Farmer and Rancher Protection fund for America's farmers and ranchers to ensure they do not find themselves in a position similar to the first two weeks of the MF Global bankruptcy. 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."
"From the beginning of the MF Global failure, CME Group has been committed to working with our customers and all other stakeholders to strengthen protections of customer segregated funds held at the firm level," said CME Group CEO Craig Donohue. "The fund announced today is the first step in what will be a series of enhancements to industry customer protection mechanisms. While we are working in partnership with the National Futures Association, the Futures Industry Association, our fellow exchanges, FCMs and customers on a broad range of solutions, we believe this is a positive step that CME can take today. 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."
The Family Farmer and Rancher Protection Fund, will serve as an additional layer of customer protection in addition to current CFTC regulations and CME Group exchange rules.
As the world's leading and most diverse derivatives marketplace, CME Group is where the world comes to manage risk. CME Group exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate. CME Group brings buyers and sellers together through its CME Globex® electronic trading platform and its trading facilities in New York and Chicago. CME Group also operates CME Clearing, one of the world's leading central counterparty clearing providers, which offers clearing and settlement services for exchange-traded contracts, as well as for over-the-counter derivatives transactions through CME ClearPort.