A coalition of farmer and ag finance organizations wrote leaders of the Congressional Agriculture Committees this week urging their careful oversight of the MF Global bankruptcy, which they said has “deeply affected” many farmers and grain merchandisers.
MF Global, a derivatives broker-dealer, declared bankruptcy on Oct. 31. Since that time, federal and international investigators have been searching for as much as $1.2 billion in lost customer money.
While no individual has been charged with wrongdoing in the case, it is widely suspected the company broke industry norms by combining customer and company money – making information about what money is available and what is seemingly lost very challenging for investigators to ascertain.
The 19 groups writing this week, including NAWG, described two goals to Ag Committee leaders: pursing all possible actions to ensure assets of MF Global customers are returned quickly – and ensuring a similar situation never happens again.
“Producers and agribusiness firms that rely on exchange-trading to facilitate risk management, as well as the lending institutions that support them, have had their confidence shaken in recent days,” the groups told Ag Committee Members.
“We have always believed that the risk to customer funds when trading on-exchange was virtually zero. Now, we see that is not the case.”
The groups described effects of the bankruptcy, including customers having trouble accessing funds, knowing how much funds are in their accounts and having accounts transferred to other institutions. Many customers have significant amounts of cash that is accounted but is tied up in the bankruptcy process.
The groups strongly asserted that customers’ commodity segregated funds receive highest priority in the hierarchy of claims as the bankruptcy proceeds.
The groups writing also focused on the confidence issues created by the bankruptcy, which is expected to be the eighth largest in U.S. history.
The U.S. agricultural sector relies heavily on regulated exchanges for risk management, and all lenders involved must have confidence the system will work to keep the market up and running. The coalition writing this week called for broad Congressional review of the protections in the system to help restore the lost confidence.
At a hearing Thursday, Members of the Senate Agriculture Committee focused many of their comments on the MF Global bankruptcy, and they will review the situation further at another hearing set for Dec. 13, at which former Sen. Jon Corzine, the former head of MF Global, has been called to testify.
The House Agriculture Committee has scheduled a hearing on the situation for Thursday, Dec. 8.
Both the House and Senate Agriculture Committees have jurisdiction over the Commodity Futures Trading Commission (CFTC), which is involved in the investigation of MF Global’s final dealings.
While this sometimes seems to be an odd division of responsibilities for agriculture leaders, they have historically retained these oversight responsibilities because of the potential impact futures markets can have on farmers and the farm economy.
The full letter sent this week is available at www.wheatworld.org/othercorrespondence.