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

As the CFTC has engaged in rulemaking over the last year under the Dodd-Frank Wall Street Reform Act, the agency has dealt with issues of cost-benefit analysis, and, although not prescribed under Dodd-Frank, these rules likely will face the same scrutiny. Speaking to that aspect, CFTC Commissioner Jill Sommers said in a statement, “As always, I am sensitive to the fact that some regulation, while well intended, may not further its stated goals or may be so burdensome that the benefits do not justify the costs.” She went on to encourage market participants to submit comments on the new rules.

With the proposed rules coming one week before the one-year anniversary of MF Global’s bankruptcy, Roe questions the timing. “Is timing optimal? No, these should have been done much sooner. Better now than never, though,” he says. “Coinciding with the one-year anniversary of MF Global, though, I don’t believe is coincidental.”

The rules were sent to the Federal Register yesterday and will be open to a 60-day comment period. Following is a list of the proposed rules as provided by the CFTC:

  • Amending Part 30 of the regulations to require FCMs to hold sufficient funds in secured accounts to meet their total obligations to both U.S.-domiciled and foreign-domiciled customers trading on foreign contract markets, computed under the net liquidating equity method;
  • Prohibiting FCMs from holding any positions in a Part 30 secured account other than customers’ foreign futures and option positions and associated margin collateral;
  • Requiring FCMs to hold sufficient proprietary funds in segregated accounts and Part 30 secured accounts to reasonably ensure that the firms are properly segregated and secured at all times, and to cover margin deficiencies in customers’ trading accounts;
  • Requiring FCMs to maintain written policies and procedures governing the maintenance of excess funds in customer segregated and Part 30 secured accounts, and requiring FCMs to obtain the pre-approval of management prior to the withdrawal of 25 percent or more of the excess funds held in segregated or secured accounts if the withdrawals were not for the benefit of the FCMs’ customers;
  • Requiring FCMs to provide the Commission and their respective designated self-regulatory organizations with daily reporting of the segregation and Part 30 secured amount computations, and semi-monthly reporting of the location of customer funds and how such funds are invested under Regulation 1.25;
  • Requiring FCMs and DCOs to provide the Commission and designated self-regulatory organizations, as applicable, with read-only direct electronic access to bank and custodial accounts holding customer funds;
  • Requiring FCMs to adopt policies and procedures on supervision and risk management of customer funds;
  • Requiring FCMs to provide potential customers with additional disclosures addressing firm specific risks; and
  • Enhancing the standards for the self-regulatory organizations’ examinations of member FCMs.
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