CFTC Chairman Gary Gensler has announced that the Commission will re-propose a measure restricting the use of client assets. The Commission hopes this action will address growing consternation over the $600 million missing from client accounts held by failed broker-dealer MF Global.
This rule, now nicknamed the “MF Rule,” was first proposed in October 2010. However, the Commission did not vote on the proposal as planned in July. This was partially the result of extensive lobbying by industry members, including the very same Jon Corzine who was MF Global’s chief executive. “It will be costly,” he said in a speech last June.
The CFTC is expected to vote on the rule on December 5th. “It is critical that the CFTC finish a rule that will enhance customer protections regarding where clearinghouses and futures commission merchants can invest customer funds,” explained CFTC Chairman Gary Gensler. However, CFTC Commissioner Scott O’Malia was more reserved in his assesment of the MF Rule: “Somewhat prematurely, this proposal is being hailed as the solution to the MF Global problem. At this time, we have not identified the cause of the segregation shortfall, and any action that we take obviously cannot be the solution until we have greater clarification on what caused the problem.”
The MF Rule would change the rules governing the investment of client assets in money-market accounts, and places limits on investment in foreign sovereign debt and internal repurchasing agreements. The rule would also strengthen swap customer segregation requirements by allowing customers to move their positions and collateral regardless of any shortfall. However, Commissioner O’Malia noted that this proposal relies on the active intervention of the CFTC, which did not actually occur during the MF Global breakdown.