There’s no reason to panic over the financial implosion of futures market juggernaut Refco Inc., say traders, regulators and experts.
Farmers’ money is almost certainly safe inside a system designed to deal with such crises.
“We have so much investor protection with those accounts,” said Bruce Love, a derivatives expert with the Canadian International Grains Institute.
“There are a lot of protective measures put in place to make sure those funds are not misappropriated.”
Refco is a worldwide derivatives market broker and custom derivatives provider, headquartered in New York City. It has substantial operations in Canada, named Refco Canada, including a large office in Winnipeg.
Read Also
USDA’s August corn yield estimates are bearish
The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
Refco Inc. appeared to fly apart after its admission Oct. 10 that former chief executive officer Phillip Bennett may have improperly hidden $500 million in debt from the company’s public financial statements. The company is seeking a buyer to take over its worldwide futures trading operations.
But its Canadian offices remain open and active and are not directly involved with the parts of the company that led to the corporate crisis, said Refco Canada chair and chief executive officer Pierre Gloutney on Oct. 14.
“We’re operating just the same as we always operate,” said Gloutney.
“All our trading floors are open. It’s business as usual.”
Many farmers who manage risk through futures and options contracts use brokers at companies like Refco to make the contract trades for them. Through their broker they maintain accounts in which changes in futures positions sometimes require them to deposit money.
Although the deposits and withdrawals from the account are executed by the brokerage companies, the money is not held directly by the broker and it is insured.
Refco’s clients’ accounts, for example, are placed with National Bank Financial, a wing of the Quebec-based national bank.
“We know where the accounts are,” said Connie Craddock, vice-president of public affairs for the Investment Dealers Association of Canada.
“We’ve got very strict rules as to how the securities in them have to be segregated in trust positions (that are) accounted for.”
Futures accounts are also backed by the Canadian Investor Protection Fund, which ensures that the insolvency, closure or malfeasance of a registered investment firm does not involve clients’ accounts.
“Our financial compliance rules are designed to ensure that securities are segregated and accounted for,” said Craddock.
