It wasn’t all Corzine’s fault? Really

The addendum strangely focuses on rule changes that have already been made like changes to the alternative method of calculating secured funds. They conclude, “We urge regulators to strengthen existing disclosure requirements to customers so that they will better recognize and understand the risks they face when they invest their funds in one place vs. another.”

Here, Rep. Michael Capuano (D-Mass.) and the other Democratic members of the subcommittee show a shocking lack of understanding to what occurred. Customers of MF Global never made any investment in MF Global. They opened accounts to trade futures. They are required to post margin to back the trades they make through MF Global. MF Global is allowed to invest the excess margin money of their customers in certain limited safe investments provided they post appropriate collateral before making any such investment. Customer money should never be at risk. If those customers wish to trade on overseas markets, their money is placed in part 30 secured accounts that allowed this alternative method of calculating what the broker must set aside for customers.

But make no mistake, futures customers are assured from the beginning of their involvement in trading that their money — placed as margin for their trading activity — is safely segregated from firm money. That is what was violated here. Reforms in certain regulations that may have arguably provided a loophole from total segregation such as the alternative method are welcome, but by no means explain violations of segregation.

While the addendum does acknowledge Corzine’s culpability going so far as to acknowledge that he could face criminal charges, to in any way take pressure off of Corzine is irresponsible and quite appropriately calls into question their motivation.

The addendum even promotes Capuano’s recently introduced legislation to merge the Commodity Futures Trading Commission and Securities and Exchange Commission, though it offers no information on how that may have helped prevent what happened at MF Global.

The shocking part of this entire episode has been how weak the investigation into wrong-doing has been and the lack of urgency in returning the property of former-MF Global customers. To use this report as an excuse to promote pet projects or ask for additional funding for regulators is symptomatic of what is wrong here.

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About the Author
Daniel P. Collins

Editor-in-Chief of Futures Magazine, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures in 2001 and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.

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