Funds protections: An overview of what happens when a commodity broker becomes insolvent
✍ Scribed by William F. Tueting; Christopher Q. King
- Publisher
- John Wiley and Sons
- Year
- 1987
- Tongue
- English
- Weight
- 582 KB
- Volume
- 7
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
King
ince there is as yet no public' and only very limited private insurance available S for customer commodity accounts held at Futures Commission Merchants (FCM), the provisions of the Bankruptcy Code dealing with FCM insolvencies assume particular importance for financial institutions. All investors, especially regulated financial institutions, must consider, as part of a risk analysis, the possibility that some or all of their funds on deposit with a Futures Commission Merchant may be lost if the broker becomes insolvent. At a minimum, an investor must consider the likely delays in gaining access to those funds in such an event. Several recent Futures Commission Merchant insolvencies, including the insolvency of Volume Investors Inc., a member of the Commodity Exchange, Inc. ( iomex ) in New York, have focused investors' attention on these issues.
The very brief outline which follows deals only with commodity futures accounts carried at an F C M . ~ However, it is likely that an institutional customer may also be trading securities (including government securities), and engaging in repurchase and reverse-repurchase transactions ( repos ) either directly or through a broker which is both an FCM registered under the Commodity Exchange (CEA) and a 'As of this writing the Commodity Futures Trading Commission (CITC) is studying the feasibility of commodity futures trading account insurance. The CFE Division of Trading and Markets issued a study in July, 1985. titled "Commodity Account Protection" which discussed a number of alternative methods for structuring a public insurance program. Pursuant to the Division's recommendation in its study, the cmc directed the National Futures Association (NFA), the futures industry's self regulatory organization, to undertake a cost effectiveness analysis of the alternatives developed by the Division. NFA made a preliminary reporf on the progress of its study to the C ~M :