On Tuesday the CFTC said that large U.S. banks are in the process of testing measures that will protect client funds posted to back derivatives trades. The measures will reduce the risk of client loss, such as those suffered during the MF Global collapse.
In the case of MF Global, clients were left with large losses after the bank dipped into a pool of client funds and used the money for its own purposes. Clients left the firm and counterparties withdrew exposures. The firm used the client money to back futures positions on exchanges. MF Global acted as the clearing agent on the exchanges and managed the collateral while backing the positions.
The Futures Industry Organization (FIA) and banks are testing programs to resolve the risk. One possibility involves funds being posted directly with clearing agents or banks, to build protections controlling access to the client funds.
FIA and banks with the most clearing capabilities have said that they do not think that completely segregating the funds is achievable. They are exploring alternative solutions, that may include enforcing separation of the different levels of staff.