Chairwoman Stabenow Calls for Urgent Action to Recover Customer Funds, Restore Faith in Futures MarketsWed, 01 Aug 2012 09:42:22 CDT
Senator Debbie Stabenow, Chairwoman of the U.S. Senate Committee on Agriculture Nutrition and Forestry, said the failures of both MF Global and Peregrine Financial Group, which resulted in an unprecedented loss of customer funds, has dealt a devastating blow to customer confidence in the futures markets and urgent action is needed to recover those funds as well as rebuild faith in the markets. The failures at the two financial firms have devastated thousands of farmers, ranchers and small businesses who rely on the futures market to hedge business risk. Chairwoman Stabenow demanded answers at a hearing examining the markets and the failures of the two now-bankrupt firms.
“Farmers, ranchers and other businesses need these markets to work to manage their risk,” Chairwoman Stabenow said. “With the droughts this year, we have certainly seen how serious those risks are. But one of those risks shouldn’t be that their futures brokerage firm will misuse their funds, go out of business and their money will have disappeared.”
Stabenow continued, “If customers don’t have faith in these markets, the markets will fail. It’s that simple. I hope today’s hearing can start to rebuild that faith for the millions of farmers, ranchers, and businesses that need these markets to work.”
Among those who testified at the hearing were the Hon. Gary Gensler, Chairman of the Commodity Futures Trading Commission, the Hon. Jill Sommers, Commissioner of the Commodity Futures Trading Commission, James Giddens, the Trustee overseeing the Securities Investment Protection Act liquidation of MF Global, Inc., Ira Bodenstein, the trustee overseeing the liquidation of Peregrine Financial Group, and Louis Freeh, the Bankruptcy Trustee, Freeh Group International Solutions, Wilmington, DE. *Freeh was unable to attend the hearing but submitted testimony for the record and will be answering questions for the record in writing.
Additional witnesses included the Hon. Walter Lukken, President and Chief Executive Officer, Futures Industry Association, Washington, DC; Mr. Terrence Duffy, President and Executive Chairman, CME Group, Chicago, IL; Mr. Dan Roth, President and Chief Executive Officer, National Futures Association, Chicago, IL; Ms. Diana Klemme, Vice President and Director-Grain Division, Grain Service Corporation, Atlanta, GA on behalf of the National Grain and Feed Association; and, Mr. John Roe, Co-Founder, Commodity Customer Coalition, Chicago, IL.
An archived webcast of the hearing can be accessed on the Senate Agriculture Committee’s website by clicking here . Below are Chairwoman Stabenow’s opening remarks, as prepared for delivery.
Examining the Futures Markets: Responding to the Failures of MF Global and Peregrine Financial Group
Good morning. Today’s hearing of the Senate Committee on Agriculture, Nutrition and Forestry will now come to order.
About eight months ago, farmers and ranchers all across America woke up to some shocking news. MF Global, one of the nation’s largest futures commission merchants, had filed for bankruptcy and hundreds of millions of dollars in customer money had gone missing.
A loss of customer money of this magnitude had never happened before. It was something that shouldn’t have been able to happen. It has been an article of faith, since the early days of the futures markets, that customer money is to be kept separate and safe.
But on October 31, 2011, that faith was shattered.
Questions were raised about how these segregated funds were being used, or if the system worked. Questions were raised about how repeated audits and reviews had missed problems that contributed to the failure. We were assured that MF Global was an outlier.
And then on July 10, 2012, it happened again.
The circumstances were certainly different and in some ways more dramatic. For the second time in eight months, customers were left holding the bag when their segregated money was misused.
Our farmers and ranchers and other businesses need these markets to work. They need to have faith that they can use these markets to manage their risk.
We have certainly seen this year that their risks are many. But one of those risks shouldn’t be that their futures brokerage firm will go out of business and their money will have disappeared.
We have heard from farmers and businesses who, after MF Global collapsed, opened accounts at Peregrine. For these folks, lightning really does strike twice in the same place, and they rightfully want to know why.
I want to know why. The members of this committee want to know why. And millions of farmers, ranchers, and business owners across the country who need these markets to function properly are demanding to know why.
I have three goals for this hearing - the same goals I had in December when we brought in MF Global executives: make sure customers get their money back - it is critical for the integrity of these markets that customers are first in line to get their money back, Make sure that individuals who engaged in wrongdoing are held accountable, and determine what changes need to be made to prevent something like this from happening again.
What that change will look like is a question we need to resolve. I asked for recommendations after MF Global, and this Committee will hear about some of those today.
We also asked where the investigations were after MF Global, and all these months later, they are still ongoing. I am eager to hear an update on where things stand with both investigations now. We need not only answers, but accountability.
If customers don’t have faith in these markets, the markets will fail. It’s that simple. I hope today’s hearing can start to rebuild that faith for the millions of farmers, ranchers, and businesses that need these markets to work.
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