— Despite a slowly recovering U.S. economy, stock trading has been unusually volatile during the past three summers because of Europe's debt crisis, uneven economic data and last year's downgrade of the U.S. credit rating.
— High-profile hedge fund employees have been charged and convicted in a broad criminal probe of insider trading by federal law enforcement agencies
Ordinary investors reading newspapers at home are growing skeptical that they can get a fair shake with so much inside information flying around Wall Street, investment advisors said.
"It's typical for an older person to bring in a clipping on one these subjects, and they're always asking, 'What does this mean?' and they don't have the complete story," said Mike Sullivan, a Charlotte, N.C., consultant to financial advisers.
He said it's getting tougher for advisers to reassure their clients, especially older Americans who would have less time to recover if their portfolios withered.
Several analysts and investors said that the only answer to this latest shock wave is bold action from the CFTC, which regulates the futures industry.
Right now, the CFTC relies on a network of industry-owned "self-regulators" that it designates to perform regular audits for companies like Peregrine and MF Global.
CFTC officials have discussed creating a deposit insurance fund, similar to the fund that compensates people when stock brokerages fail and the Federal Deposit Insurance Corp., which covers bank deposits.
But Greenberger said it would be difficult for such a fund to cover people's losses because the typical business buying futures to hedge has many millions of dollars tied up in the investments.
"This puts a big hole in the market, it requires a terrific boost of confidence and we're moving in exactly the wrong direction," he said.
He said the CFTC needs to do more of its own audits and rely less on the industry self-regulators, who gave Peregrine and MF Global passing audits in the months before they collapsed.
"If we don't do that, the market's going to heck in a handbasket and everybody is going to be hurt," he said.
The CFTC has argued that it lacks the resources to conduct more aggressive enforcement. President Barack Obama's budget proposed expanding the agency from about 700 employees to about 1,100, Greenberger said, but congressional Republicans have blocked efforts to increase its funding.
A CFTC spokesman did not respond to a request for comment.
Daniel Wagner can be reached at www.twitter.com/wagnerreports.
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