--Commissioner Chilton puts forward plan for insurance fund
--Congress would have to approve the plan
--Some in industry have raised concerns about costs
(Adds comment from another CFTC commissioner, Scott O'Malia, in
seventh and eight paragraphs.)
By Jamila Trindle
WASHINGTON--Commodity Futures Trading Commission member Bart
Chilton detailed a plan for an insurance fund for futures customers
Thursday, after customers lost money in failures of two futures
firms in the past year.
A shortfall in customer funds revealed at Peregrine Financial
Group last month renewed calls for an insurance program for futures
customers, but the plan still faces many hurdles, including getting
legislation approved by Congress.
"I've put this proposal out there because we need to move this
discussion forward and get a new law on the books to better protect
customers," Mr. Chilton said in an email.
The fund, as Mr. Chilton outlines it, would be modeled on a
similar insurance plan for securities customers and would be
created by collecting fees from futures brokers "which would under
no circumstance exceed 0.5% of the merchants' previous year gross
revenue specific to futures."
The insurance would pay out up to $250,000 in the event that
customer money was taken.
"This would help remedy the present crisis of confidence in the
futures markets in the wake of the fall of the Peregrine Financial
Group and MF Global," Mr. Chilton said in a draft proposal on the
fund.
CFTC Commissioner Scott O'Malia said that the first priority
should be creating the technology that would allow regulators to
check on customer funds on a daily basis.
"First and foremost let's put in a technology solution to ever
prevent fraud from creating the necessity of an insurance fund,"
Mr. O'Malia said on the sidelines of a meeting at the CFTC to
collect ideas for ways to protect futures customers.
Similar calls for an insurance fund were made after the failure
of MF Global Holdings Inc. (MFGLQ) last fall left a $1.6 billion
hold in customer accounts, but many in the industry have opposed
it.
At a congressional hearing last week, CME Group Inc. (CME)
Chairman Terry Duffy warned that an insurance program could be
cost-prohibitive.
Futures Industry Association President Walt Lukken said that the
trade group is looking into the possibility.
The Commodity Customer Coalition, a group advocating for MF
Global customers, put forth a different insurance plan at the
hearing.
"We have to stop expecting the regulators to do their jobs and
start offering customers protections when they do not," said John
Roe, a spokesman for the group.
Write to Jamila Trindle at jamila.trindle@dowjones.com
