U.S. farmers and ranchers who had accounts with failed broker MF Global have got back the bulk of their money but are still owed about $100 million, the Chicago Mercantile Exchange indicated on Thursday after announcing a fund to help them.
The $100 million is believed to be part of MF Global customers’ $1.2 billion in funds that remain missing after the chaotic flameout of the broker and marks the first time the amount still owed to farmers and ranchers has been quantified.
Thousands of MF Global clients have received about 70 percent of their money held in segregated accounts since the broker filed for bankruptcy on Oct. 31.
The CME on Thursday announced it would launch on March 1 a $100 million fund to protect farmers and ranchers who used grains and livestock futures markets operated by the exchange against fiascos like that of MF Global in the future.
“We based the fund size on what they are still missing following MF Global,” CME spokesman Michael Shore told Reuters. “If a similar event were to occur, the Protection Fund would get each eligible participant much closer to whole — up to $25,000 for individual farmers.”
A CME source said the exchange arrived at the $100 million figure based on the average size of accounts held by farmers and ranchers with MF Global.
Farmers and ranchers, still tending raw wounds from the bankruptcy, said the $100 million plan amounted to “window dressing”.
MF Global, the once-dominant broker for hedging in agriculture futures, went bust after making bad bets on European debt.
The CME insurance plan covers farmers and ranchers who use the exchange for up to $25,000 and cooperatives for up to $100,000 when a clearing member fails.
The move was seen by many farmers as an effort to lure back customers or sooth their anger after the exchange, MF Global’s main regulator, drew criticism from account holders over the quality of its oversight.
The CME, the world’s largest derivatives exchange, audited MF Global days before the broker filed for bankruptcy and chilled trading volume in grains and livestock futures markets.
“It seems like a good business decision to restore confidence in the company, but it’s woefully inadequate,” said Dean Tofteland, who farms about 2,000 acres (800 hectares) with corn and soybeans in Luverne, Minnesota.
Tofteland, a second-generation farmer who has retrieved 72 percent of the $253,000 held in his MF Global account, said he would get back just over $2,000 from the CME fund based on a hypothetical case in which $1.2 billion in customer funds are missing — a scenario similar to MF Global’s current situation.
‘PEOPLE STILL LEERY’
Tofteland, who uses the CME’s Chicago Board of Trade grain futures to lock in prices for his crops, was also disappointed that there had been no indictment or prosecution in the aftermath of the MF Global collapse.
Many Midwest farmers had to delay purchases of seed and equipment in the days after the bankruptcy.
“Many have been hurt by MF Global’s bankruptcy. Though all the facts are not yet in, we do know our industry needs to focus on enhancing protections for customer segregated monies held at the firm level,” CME Group Executive Chairman Terry Duffy said in a statement.
CME spokesman Chris Grams said the exchange’s plan was “new and created to serve as an additional layer of customer protection.”
Joe Ocrant, president of Oak Investment Group whose clients include companies that operate feedyards where cattle are fattened for slaughter, said the fund will help to allay some of his clients’ fears. But he added that the protection offered by the CME was well short of what the “big hedgers” need.
“Some of my bigger clients hedge up to $1 million, and these people will still be leery,” he said. “It’s a start along the path, but they have been stung bad.”
Tony Rohrs, a fourth-generation farmer in northwest Ohio who uses the CBOT market to hedge, called the CME fund “window dressing” and added, “I am not totally reassured.”
“I know they are trying to restore some confidence in the situation, but it’s a little late in the day,” said Rohrs, who grows corn, soybeans and wheat.
John Owen, who farms 4,000 acres in northeast Louisiana, welcomed the fund, saying: “It’s a real good thing that CME is providing an insurance policy.”
(Additional reporting by Julie Ingwersen; Editing by Jim Marshall, David Gregorio and Dale Hudson)