The National Futures Association (NFA) has compiled a report on the economic feasibility of adopting an insurance regime that would serve the US futures industry.
The research follows several high profile failures of futures market speculators, such as that of MF Global in 2011.
The study was commissioned by four sponsoring organisations, including the NFA, in November 2012. It was carried out by Compass Lexecon, an economic consulting company.
Christopher Culp, a risk management consultant, led the team at Compass Lexecon. The objective of the study, Culp said, was to analyse and quantify the potential costs of various scenarios, including a government-mandated solution similar to what exists today in the securities industry, as well as voluntary market-based solutions provided by private insurance companies."
The study examined four potential insurance models and developed estimates for the potential costs involved.
The report favoured an insurance structure where several futures trading companies jointly formed a captive that would provide insurance to its participants.
The proposed captive would retain first-loss retention, meaning that in the event of a catastrphic loss, claims would only be paid by the members that were not failing, and reinsurance would cover claims in excess of the captive's capital limit.
