When MF Global went down many traders seemed to regard it as an aberration -- a one time event that arose from a very unusual set of circumstances. They did not even pay attention to the CFTC financial reports that showed MF was clearly in trouble months before it went down. Contrary to the common wisdom even the retail trader who had bothered to do a three minute once a month review of his counter party had time to get out whole.
Financial Data for Futures Commission Merchants -- Google it ... it is a monthly report that lags about 40 to 45 days. My wife checks the three firms we deal with around the 11th of every month (that's when the email alert tells us it is available) and informs me of significant changes.
Now that PFG has demonstrated that fraud can be so simply perpetrated most traders see the need for insurance. They are realizing segregation is a joke. It is Swiss cheese protection. The most important thing to realize is that the industry hates the idea of insurance because for years -- forever really -- they have skated by with very little oversight. They do not want any scrutiny.
The 20th century history for those that care is that the Chairman of Ways and Means, Danny Rostenkowski, ran interference for his homeboys in Chicago and protected the pits in every imaginable way including keeping insurance and therefore scrutiny off the table. That tradition continues under different leadership. Danny's indictment on 17 felony counts in the 90's cost him his seat.
A very simple and low cost insurance scheme would cover 95% of the retail futures traders and cost next to nothing. All that should be done is that $100,000 or even $50,000 of each customers cash in a segregation account up to a maximum of 80% of that deposit. By leaving out the margin posted with clearing firms you greatly reduce the size of the scheme and by putting the customer at risk for 20% from dollar one you give them an incentive to care where they keep their money. And, since by virtue of the leverage available even $50,000 can go a long way for a speculator particularly if he can get it replicated two or three times by using more than one firm. Larger traders will have an easier and cheaper time purchasing more insurance privately once this mini-SIPC is in place.
It is small, simple to implement, rational and sure to be opposed by the industry. The other problem is if it gets introduced in congress by the time the bill comes to the floor -- if it ever does -- it will be a monstrosity that will help no one. Such are the times we live in.
Financial Data for Futures Commission Merchants -- Google it ... it is a monthly report that lags about 40 to 45 days. My wife checks the three firms we deal with around the 11th of every month (that's when the email alert tells us it is available) and informs me of significant changes.
Now that PFG has demonstrated that fraud can be so simply perpetrated most traders see the need for insurance. They are realizing segregation is a joke. It is Swiss cheese protection. The most important thing to realize is that the industry hates the idea of insurance because for years -- forever really -- they have skated by with very little oversight. They do not want any scrutiny.
The 20th century history for those that care is that the Chairman of Ways and Means, Danny Rostenkowski, ran interference for his homeboys in Chicago and protected the pits in every imaginable way including keeping insurance and therefore scrutiny off the table. That tradition continues under different leadership. Danny's indictment on 17 felony counts in the 90's cost him his seat.
A very simple and low cost insurance scheme would cover 95% of the retail futures traders and cost next to nothing. All that should be done is that $100,000 or even $50,000 of each customers cash in a segregation account up to a maximum of 80% of that deposit. By leaving out the margin posted with clearing firms you greatly reduce the size of the scheme and by putting the customer at risk for 20% from dollar one you give them an incentive to care where they keep their money. And, since by virtue of the leverage available even $50,000 can go a long way for a speculator particularly if he can get it replicated two or three times by using more than one firm. Larger traders will have an easier and cheaper time purchasing more insurance privately once this mini-SIPC is in place.
It is small, simple to implement, rational and sure to be opposed by the industry. The other problem is if it gets introduced in congress by the time the bill comes to the floor -- if it ever does -- it will be a monstrosity that will help no one. Such are the times we live in.
