Pointing out that pork producers depend on risk-management tools, including futures contracts, to deal with the volatility in feed grain and hog prices, the National Pork Producers Council today urged Congress to bolster confidence in the futures market in the wake of the MF Global bankruptcy.
In written testimony submitted for the record today to the Senate and House agriculture committees and to the House Financial Services Committee, NPPC said most producers were unaware of their connection to MF Global and were stunned to learn in early November, when the clearing broker filed for bankruptcy, that their futures accounts were frozen and funds were “missing.” (As much as $1.2 billion of customer funds may have been comingled with MF Global money and used to buy risky European debt.)
Pork producers who produce at least 20 percent of U.S. hogs had funds with MF Global. Most, if not all, of them, however, did not deposit their funds directly with the clearing broker. They opened futures trading accounts with an “introducing” broker, which put the funds into MF Global.
NPPC raised in its testimony a number of questions about the MF Global situation:
- Are there mechanisms that can be put in place to prevent another MF Global?
- Will customers be given priority in the bankruptcy proceedings to recover funds?
- Will producers whose funds were with MF Global be made whole?
- How will the transfer of funds from MF Global to new accounts with other clearing brokers be treated by the Internal Revenue Service?
- Will actions be taken to simplify and expedite claims to recoup funds?
The organization also offered a number of possible ways to prevent customer futures accounts from being compromised, including:
- Impose stiffer criminal and/or civil penalties for misuse of customer accounts.
- Require brokers to obtain permission before using customers' funds for purposes other than customer transactions.
- Extend to commodities exchange customers insurance similar to that provided to securities investors through the Securities Investors Protection Corporation.
- Require other financial tests and additional audits of brokers and dealers by governmental and non-governmental entities.