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Abstract

Two of the largest futures commission merchants (“FMCs”)—MF Global and Peregrine Financial Group—filed for bankruptcy in 2011 and 2012, respectively. The bankruptcies of two of the largest players in the futures commodity market shook up the industry. Many customers became weary and distrustful of FCMs. This Article proposes solutions in order to boost customer confidence in the futures market without deterring the largest futures traders. Further, this Article discusses the pitfalls of the current regulatory model with respect to customer segregated funds and the necessary changes to the current regime by the CFTC and other self-regulatory organizations. After the MF Global and Peregrine Financial bankruptcies, the CFTC and other self-regulatory organizations put forth additional requirements for increased protection of customer segregated funds held by FCMs. Solutions discussed in this Article include an industry funded insurance pool, the use of third party custodial accounts, a customer guaranty fund, and a central customer funds repository. This Article recommends a short term proposal of an optional customer guaranty fund and a long term proposal of a central customer funds repository.

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