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Time for a Futures Insurance Fund: CFTC's Chilton

Thursday, 9 Aug 2012 | 2:59 PM ET

Commodities Futures and Exchange Commission (CFTC) commissioner Bart Chilton is calling for an insurance fund to protect futures customers.

Chicago Mercantile Exchange (CME) traders
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Chicago Mercantile Exchange (CME) traders

“It just makes zero sense that we have insurance funds for banking customers and we have insurance funds for securities customers but not for futures customers,” Chilton told CNBC’s “Power Lunch.”

The fund would reimburse up to $250,000 to customers when there is a failure of a fund, not a trading loss, he said.

Chilton is aware that there is the potential for an insurance system to encourage bad behavior.

“This program would not take care of any bad trading losses or any downturn in the economy, it would really be for failures like an MF Global or a Peregrine,” Chilton said. He also noted that securities customers have already been reimbursed for MF Global losses, while futures customers are still waiting. (Read More: The Trade That Killed MF Global).

The program would be funded through collecting fees from futures brokers. The charges would be 0.5 percent of a broker’s annual gross revenue up to a limit of $2.5 billion annually. “It’s less than the securities insurance currently charges,” Chilton noted.

CFTC's Chilton on a Futures Trading Reform
The CFTC is holding a roundtable discussion today on ways to better protect consumers following the failure of MF Global and Peregrine Financial Group. Bart Chilton, CFTC commissioner, speaks to CNBC's Rick Santelli.

One reason there haven’t been calls for a futures insurance fund in the past is that retail investors were not major participants in the market, Chilton said.

“I think after the debacles like MF Global and Peregrine and we actually see hard working average folks in Iowa and the Midwest and all over the country with MF Global impacted, there’s been a wake-up call,” he said.

The proposal would need Congressional approval to become law, according to Chilton's press release on the matter.

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