CME Group, Futures Industry Association (FIA), the Institute for Financial Markets and NFA announced that they have jointly commissioned a firm to study the costs and benefits of adopting an insurance regime for the U.S. futures industry. The study (due out in the spring) will examine various models for providing insurance in the futures industry and assess a range of variables for each model, and is expected to address a lack of detailed information on the potential costs and benefits associated with various insurance alternatives.
This insurance study is the latest in a series of initiatives taken by the futures industry to enhance customer protections and address the concerns raised by the collapse of MF Global and Peregrine Financial Group.
Lofchie Comment: The “insurance” at issue, for those not familiar with the issue, is of the type that SIPC offers to customers of broker-dealers and that the FDIC offers to bank deposit customers. CFTC Commissioner Chilton has been a big proponent of a federal insurance plan for futures. I am curious as to what these market participants will recommend. It seems to me that insurance protection is primarily attractive to retail investors; for institutional investors, the amount of protection provided by insurance is not as meaningful. Given that the futures markets are largely institutional, it is not clear how much an insurance program will give comfort to market participants. That said, I feel hope that a study led by those market participants who have the most to gain from a strong futures market motivated will be more likely to fairly assess the costs and benefits of such a program than an “impartial” study.
Click here to view announcement in full (links externally to FIA website).