Commodity Customer Protections and Regulations History and Potential Solutions for the Future 1938-2012

The Oct. 31, 2011 bankruptcy of MF Global sent shockwaves throughout the Futures industry because of missing customer segregated funds estimated to be between $700 million and $1.2 billion. As a result, roughly 38,000 customers with futures trading accounts at MF Global had their account funds frozen, and to date have only received 72% of their funds.

Violation of the sanctity of customer segregated funds – the regulatory requirement that customer monies must be held separately from brokerage firm assets and 100% available to the customer – by MF Global, one of the largest firms in the business, has shaken industry professionals and customers to their core. Thus, the call for improving the protection of customer funds in the futures industry.

Interestingly, the National Futures Association (NFA) conducted a 15-month study of customer account protections that it delivered to the Commodity Futures Trading Commission (CFTC) in 1986. Although 25 years old, its enumeration of customer protections and findings concerning alternative methods, such as an insurance fund, remain largely relevant.

We look at the 1986 Study as well as the current situation and recommendations by such groups as the Commodity Customer Coalition (CCC) in this study.

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