Following the MF Global scandal Commodity Futures Trading Commission member Bart Chilton released a proposal Thursday to create a protection act for futures investors.
Though initial consideration was given to crafting such a proposal after MF Global, Chilton said the downfall of Peregrine provided traction for the idea of a protection act. He proposed to call the new act the "Futures Investor and Customer Protection Act."
Previously, Chilton said in a statement, "The support for such a futures fund was essentially zero. Nobody said they liked it."
Concerns Chilton heard from lawmakers were mostly about the cost of the proposal, but Chilton said he didn't agree.
The proposal would seek to extend the existing Securities Investor Protection Corporation that is available for securities customers to futures customers. Chilton said his proposal would draw on the existing blueprint of the SIPC to remedy declining confidence in the futures markets.
In the event of a brokerage collapse, such as MF Global or Peregrine, the proposed act would provide more efficient reimbursement of missing funds and be gathered from a fee assessed on all futures commission merchants. The fee would be determined using the previous year's gross revenue specific to futures, and would not exceed $2.5 billion.
A non-profit corporation and board of directors would also be created to oversee futures interests. The board would consist of three members, appointed to determine policies for the corporation, and would be confirmed by a Senate majority vote. Chilton pointed out that this relationship would be similar to that of the Securities and Exchange Commission and Securities Investor Protection Commission, which were established under Securities Investor Protection Act.
Chilton also said futures customers would have the right to file claims with a trustee, who could transfer customer accounts to solvent FCMs or to liquidate them.
Unlike SIPA, customer claims would be limited to $250,000 in futures liquidation value and cash.