There isn’t much left out of the June 4th report from MF Global Trustee James Giddens “Report of the Trustee’s Investigation and Recommendations.” It’s a thorough 181 page (275 if you count all the charts and graphs at the end) Titanic journey of MF Global under Jon Corzine’s leadership. While much has been made of the report’s focus on Corzine, as well as chief financial officer Henri Steenkamp and assistant treasurer Edith O’Brien, who often and ultimately sent money to various places, this report is most valuable for its recommendations at the end.

Giddens recommends a number of changes, among them, that customer funds should be segregated, “regardless of whether they are invested domestically or overseas.” He adds that for overseas investments, funds and assets “be segregated to the maximum extent provided for under the stricter of U.S. law and applicable foreign laws and regulations as a condition to allowing funds to be held abroad.”

This is designed to address the shell game MF Global was playing with customer funds that were invested in overseas markets, and thus given a lighter regulatory touch.

In addition, Giddens calls for a protection fund. This is an idea that has been debated in the industry. But the trustee says in the report that “even a modest protection fund from which commodities customers could have received advances” would have worked well in this case. Giddens’ analysis says that about 78% of the FCM customers’ claims were “in fact below a threshold of $100,000, and that the accounts of more than two-thirds of the customers who filed claims represent only 3% of the total amount that MFGI was required to segregate for commodities customers, or no more than $200 million in total.”

In Giddens’ view, a fund capped at a relatively low dollar amount per customer would “make these customers whole very quickly even in a case with a shortfall the size of MFGI’s.”

There are other recommendations but Giddens’ is really cutting to the crux of the matter here, which many in this industry have grappled with since last October. There needs to be better regulatory harmony and clarity as it pertains to customer seg funds. And a customer fund could indeed, withstand a massive default, and maintain the trust and faith in the futures markets. NFA recently made some strides toward that goal with is May 29th proposal for customer seg funds, also known as the “Corzine Rule.” But Giddens would go much further.

It’s advice well worth taking.

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