the MFG client problems would have been easily prevented with insurance Anyone handling client funds should also be insured in every case there should be no limit to how much is able to be insured
The guy is an incredible crank, but somehow he's attracted a following. PS. I agree, a simple NASD-style insurance should be required for futures brokers. The issue is not the use of the funds (if the brokers would not be able to deploy these funds, the costs for the final users will skyrocket), but rather to ensure the proper due diligence and process.
Segregation makes this is a useless proposition. The clearing house is that mechanism, and as far as I can see the sharks running MF Global did disclose their hyper-hypothecation arranagements and nothing about that would have prevented this. NASD Style insurance is extremely costly, useless, and, not only that, unnecessary. Hyper-hypothecation and segregation are still cornerstones of this market. They don't guarantee against bankruptcies because if you start to do that no matter how much insurance premiums are this will be far more costly than limiting leverage factors to some notional equivalent no greater than 20.
bwolinsky, as far as I'm concerned, what you state is rubbish " . . . insurance is extremely costly, useless, and, not only that, unnecessary." SIPC - Securities Investor Protection Corporation - annual broker fees: "Effective April 1, 2009, each memberâs assessment was established by bylaw at the rate of ¼ of 1% of net operating revenues from the securities business or $150, whichever was greater. Effective July 22, 2010, the $150 minimum assessment was eliminated by the Dodd-Frank Wall Street Reform and Consumer Protection Act." - 2010 Annual Report the CIPF - Canadian Investor Protection Fund insurance gazumped MFG US and 'the US MFG bankruptcy case' from scooping Canadians' money as soon as the MFG bankruptcy was declared ALL of the MFG Canada account holders have Their money
MFG Canada was a sister company treated separately under Canadian Law. The 1/4 of 1% of assets or something similar would increase trading costs to all futures market participants. Just cause somebody paid into an insurance pool does not mean that society would be better off. In fact, more than likely whatever premium they set would eventually get passed onto the taxpayer, not the participants. If segregation doesn't sound like the cure all for everything, it still is, but does not guard against psychopath CEO's who don't know any better leveraging themselves nearly or over 40:1. 20:1 should be the limit on that notionally, but as far as canadians getting money most likely government entities paid most of the bill still, and I doubt the premiums even came close to covering those costs. It's a completely separate issue than what we should be doing in the US, which is not creating another bureaucratic inefficient regulation. The only regulation needed here was regulation of leverage, and that's much more reasonable than imposing costs on firms who don't need the same SIPC/NASD protections as futures firms because it is on the clearing house to guarantee individual performance margins, and even if you don't see the need for that or think it failed, you'd still have these once in a century or decade events where a CEO goes on tilt in the most literal sense of the world just to hyper-hypothecate their investor's funds away. Insurance premiums would not produce an efficient outcome for our society, and would only benefit customers when it is more than likely the government entities that would end up paying most of the bill than the paltry sums the Canadian Government made itself responsible for.