By ANN HINCH Associate Editor
CHICAGO, Ill. — Set to take effect this week, a $100 million fund the CME Group has set up as a safety net for farmers and ranchers owes its origins to last year’s collapse of brokerage/clearing firm MF Global, Inc. and the Oct. 31 bankruptcy filing by MF Global’s parent company.
The Family Farmer and Rancher Protection Fund – which, at press time, was expected to be in effect by March 1 – is available to those who may suffer future losses from the “insolvency of a clearing member or other market participant.”
Claims are not retroactive, which means though CME did business with MF Global, farmers who lost money to the company cannot file a claim through this new fund.
About 4,700 family farmer and rancher CME accounts were affected by MF Global’s losses, according to Bryan Durkin, CME’s chief operating officer – the same type of clients who, if something similar were to happen again in the future, would be eligible to recoup certain losses from this new $100 million fund.
“This particular group is the heart and soul of our agricultural business,” Durkin said of farmers, with respect to being in the position of needing to buy seed and plant and raise livestock “so we can all eat … In the context of making the decision on the fund, we really felt an inherent responsibility to address this (segment of CME’s clientele).”
What happened with MF Global is it was supposed to segregate farmer and rancher funds from others within the company, but did not, reportedly risking these on questionable European investments.
CME stated the clearing firm misused those funds, and the trustee in MF Global’s New York bankruptcy case is trying to recover money to pay back the firm’s investors – including farmers.
According to Thomson Reuters articles earlier this month, the bankruptcy trustee is trying to recover approximately $1.6 billion still missing from MF Global customer accounts (of which farmers’ and ranchers’ investments were only a portion).
Durkin said CME guaranteed $550 million to help accelerate this payback, as well as another $50 million to help make up customer shortfalls that may result at the end of the case.
“It was really to give (the trustee) the comfort level to release the money” to CME’s MF Global clients, he said.
In the event of a future similar fiasco, individual claimants will be eligible for up to $25,000 apiece from the new fund; cooperatives will be eligible for up to $100,000.
If losses total more than the fund is worth, each farm or ranch loss will be calculated for a pro-rata share of the fund up to the $100 million cap.
This fund is the first step in what Durkin and CME call a “holistic approach in identifying solutions to protect and reinforce” the industry against future financial failure.
Basically, it’s a way to reassure farmers and ranchers who use the Chicago Board of Trade and other CME services to hedge risk that it’s still safe to do so.
On Feb. 8, Thomson Reuters reported CME had taken a blow from the MF Global bankruptcy from rating agency Standard & Poor’s (S&P), in the form of a drop from “AA” to “AA-“ in its credit rating. The article also stated according to S&P, CME raised its financial risk by increasing protection to futures customers in the wake of MF Global’s collapse.
Swaps application delayed
In other CME Group news, in late January, it announced it would be offering eight new over-the-counter grain and oilseed swaps as of Feb. 13, on the heels of a new Commodity Futures Trading Commission (CFTC) ag swaps rule that took effect Dec. 31, 2011. Not long after that, CME announced the swaps introduction would be delayed, based on CFTC staff’s interpretation of the new rules. CME “has withdrawn its submission for the launch” of the new ag swaps, according to spokesman Chris Grams on Feb. 2.
“At this stage, we’re working closely with CFTC staff to determine a new launch date for these products,” he added.
Because the news of CME delaying its application for the ag swaps came around the same time as the announcement of the Family Farmer and Rancher Protection Fund, Farm World asked Durkin if the safety net was established to make CME’s swaps re-application more favorable to the CFTC. He said this was not the case. “One has no relationship to the other,” he stated.
The CFTC declined to comment in response to a similar question. |
