MF Global debacle should raise concern for baking, milling

by Josh Sosland
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Moving from the widespread public association of risk with dealings on futures exchanges to current concerns ruling among seasoned professionals has caused real consternation among a wide range of users of futures products, including bakers.

By way of history, it’s fair to suggest that few if any hedgers or speculators worried more than passingly in the past about the risk that has come to light in the wake of the MF Global bankruptcy — the invasion of or loss of supposedly segregated funds belonging to customers and held at brokerage houses.

In a letter to Congress and the Commodity Futures Trading Commission, a group that includes the National Grain and Feed Association and a number of banks has asked Congress to take steps to ensure that what happened at MF Global — between $600 million and $1 billion in customer assets currently are missing — will never happen again.

“We always believed that the risk to customer funds when trading on exchanges was virtually zero,” the groups wrote. “Now, we see that is not the case.”

While the MF Global debacle should raise concerns among bakers in their own right, the presence of bankers among signers of the letter underscores the issue’s importance. Bankers loaning funds to collateralize hedges rightly ought to insist the collateral is secure. Risks associated with accounts at brokerage houses will never truly be reduced to zero. Bakers and other users of futures contracts have a large stake in understanding these risks and the steps being taken to mitigate them. They also should support sensible regulatory changes to reduce the risks going forward.

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