CFTC steps up customer protections as MF Global nears one-year anniversary

The Commodity Futures Trading Commission (CFTC) announced new rules and regulations related to customer fund protection earlier today. The Commission unanimously approved the new rules yesterday in response to MF Global’s demise one year ago and the revelation of fraud at PFGBest earlier this year.

Speaking at the annual Securities Industry and Financial Markets Association meeting, CFTC Chairman Gary Gensler announced the rules this morning. “I am pleased that yesterday the Commission voted unanimously to put out for public comment a proposal on enhanced protections for customer funds.  This proposal is about ensuring customers have confidence that the funds they post as margin or collateral are fully segregated and protected,” he said in prepared remarks.

With proposed rules ranging from changes to Part 30 segregation requirements to granting regulators direct, view-only access to segregated funds, the proposed changes cover a lot of areas. John Roe, co-founder of the Commodity Customer Coalition, commends the Agency for the steps. “It’s a step in the right direction. They’re doing what they can within the framework of the statute of their powers,” he says.

Although Roe is supportive of the steps the CFTC is taking, he cautions the Agency about overstepping its capabilities. “I fully support requiring [futures commission merchants (FCMs)] to do daily segregation reports, but I’m not sure the extent to which that will be decipherable to the CFTC,” he says. “One of the problems with extra reporting is being able to actually be actionable. I’m not convinced this is.”

Commenting on the proposed rules, CFTC Commissioner Scott O’Malia echoed some of those concerns saying the Agency needs to enhance its technology. “While these measures are a good start, I believe that it is essential to focus on a comprehensive technological solution that goes beyond what the Commission has proposed in this release,” he says. “Technology can be a cost effective oversight tool for both customers and the Commission to enhance transparency and improve risk management. Improving our capacity to monitor money flows can serve as a significant deterrent against fraudulent behavior.”

A number of the rules proposed already have been taken up by the National Futures Association (NFA), such as the so-called “MF Global Rule” that requires FCMs to notify regulators of any draw in excess segregated funds of 25% or more if the withdrawal is not for the benefit of customers. Roe explains that the NFA is the designated self-regulatory organization for only the non-clearing world, and by adopting these rules at the federal level, the CFTC is taking what the NFA already has done and is broadening it to the entire industry. “There doesn’t seem to be too much that is new and I’m not sure it’s going to provide us with the warm blanket that we need to assure customers that their money is safe,” he says.

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