CCC’s Presentation on a Captive Insurance Company offering Commodity Customer Account Insurance.
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The CCC is working on a plan to provide insurance for commodity customer accounts through the private market. The plan involves setting up a captive insurance company, owned by various industry constituents, which would offer insurance policies to commodity customers. The CCC believes this is the only path to provide an effective protection mechanism for FCM insolvencies which result in a shortfall in customer proerty.
Though we still favor the Canadian model for a customer protection fund, which provides liquidity to port customer accounts out of the bankruptcy process, we see no legislative path to the creation of such an entity. We fear that Congress will favor the ‘devil it knows’ and consider crudely adapting the SIPC model to futures accounts. Standing in the way of that proposal will be the exchanges and FCMs, arguing that such a plan has huge costs and little benefit. We believe this will stall in Congress and the push for a customer protection fund or insurance mechanism will die on the vine. As a result, the CCC has committed to studying the utility of a captive insurance model to achieve an effective customer account insurance mechanism.
Above please find our presentation on the Commodity Insurance Corporation, our captive approach to providing commodity customer insurance. In the coming weeks, the CCC will commission a feasibility study to provide proof of concept. Parallel to this study, we will survey market constituents to determine if there is indeed a market for such a product and what the costs will be. Should those metrics return a result which favors moving ahead, the CCC plans to begin the legal work to found the insurance company.
We will keep you posted as to the progress of this project.