“The Man With The Plan” CFTC's Chilton Proposes Futures Insurance Fund

After early whispers earlier today, CTFC Commissioner Bart Chilton went public and made an official statement proposing the enactment of

After early whispers earlier today, CTFC Commissioner Bart Chilton went public and made an official statement proposing the enactment of an Insurance Fund to protect Futures customers. Chilton initially called for such a fund in November after the MF Global debacle. The theory was, if banking customers have the FDIC, and security customers have the SIPC, than the time had come to protect Futures customers. In Chilton’s own words “The support for such a futures insurance fund, at the time, was essentially zero. Nobody said they liked it. A few folks said they didn’t like it.” As such, the idea was shelved.

However, after the latest collapse of PFG Best , where $200 million has gone “kaput,” Chilton’s initial idea of a Futures Insurance Fund has received renewed interest from the public and Congress. On this note, Chilton created a formal proposal today for Congress.

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Details of the proposal:

  1. The establishment of a Futures Investor and Customer Protection Fund (FICPC): Dispersing of the funds would follow the methods of the SIPC. However, unlike the $500,000 cap for the SIPC, FICPC payments won’t exceed $250,000. Collection of fees for the FICPC would come from FCM’s, and won’t exceed 0.5% of a merchant’s previous year’s revenues. Once the fund reaches $2.5 billion, the level of fees will be reduced or suspended altogether. Chilton also recommends a discounted collection to revenues collected from commercial hedging or end user customers.
  2. FICPA would create a separate non-profit Corporation and a Board of Directors for Futures interests: The FICPC would be controlled by an appointed three-member Board of Directors who would determine the policies that would govern the operations of the Corporation. These members would then be confirmed by a Senate majority vote.
  3. Futures Customers would have the right to file claims with a Trustee for priority treatment: Claims by Futures customer that were impacted by failures have the power to transfer their claims to a trustee. Claimants would have to demonstrate that they qualify as a “Customer” as defined by the SIPC, and that their losses were not caused by changes in market conditions.
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