US futures watchdog tightens client funds rules
US regulators have adopted more stringent restrictions on how futures brokers and clearing houses can use customers’ funds as federal investigators continue to look for an estimated $1.2bn still missing from client accounts at failed brokerage MF Global.
The Commodity Futures Trading Commission (CFTC) voted 5-0 on Monday to approve a rule that largely prohibits firms from using customers’ cash to invest in foreign sovereign debt or to finance in-house bets by other units or affiliates through repurchase agreements.
MF Global, under former chief executive Jon Corzine, (yes that is the former NJ Governor -ggt) bet billions of dollars on European sovereign debt before downgrades of the broker’s credit led the company to declare bankruptcy in October. Authorities say MF Global had been dipping into clients funds for weeks before its failure. It is illegal for a firm to use customer funds for its own investments.
James Giddens, the company’s bankruptcy trustee, said last week that some customer money from MF would never be recovered. The revelation has rocked the once-sleepy futures industry and shaken confidence among investors.
Since then, regulators have sought to stiffen the requirements governing companies’ use of customer funds. The CFTC originally proposed its rule in October 2010 but the measure languished as firms, including MF Global, sought to weaken it.