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Terry Duffy is sick and tired of futures customers getting ripped off.
The head of the nation’s largest futures exchange yesterday suggested all customer funds stay on deposit at his Chicago Mercantile Exchange or other clearinghouses to protect the cash from brokers going bust.
The radical change was offered up after Jon Corzine’s MF Global and Russ Wasendorf’s PFGBest brokers went bankrupt — causing tens of thousands of customers to lose money.
“While these firms may have been at fault, it’s nevertheless our problem as an industry,” Duffy, the chairman of the CME, wrote in a letter to customers suggesting the change.
Currently, clearinghouses like CME, which clear trades for futures brokerages, hold some customer cash but leave a good chunk with the brokerages that house customers’ trading accounts in case of margin call needs.
The money left with the brokerages is theoretically supposed to remain safe from firm failures or other funny business — but that was not the case at MF Global and PFGBest.
Customers of Corzine’s MF Global are still out some $1.6 billion after the firm improperly dipped into customers’ accounts ahead of its collapse last Halloween.
The debacle was followed by the shocking news this month that Wasendorf, founder of Peregrine Financial Group, which runs PFGBest, has been stealing customers’ money for decades.
Some $220 million in customer funds at Peregrine remains unaccounted for, according to regulators.
Stanley Haar of Haar Capital Management, which had money parked with MF when it collapsed, said he thinks the change just might work.
“The CME is clearly in the ‘too big to fail’ category, so we should be safe there,” he said.
In the letter, Duffy said clearinghouses would give back to brokerages any interest earned on their customers’ money.
Such a change will likely lead to brokerages raising their fees, experts said.