MF Global Holdings, Ltd. (fka MFGLQ)

[TheProfit]

CFTC's Chilton: MF Failure Shows Need For Greater Regulation

Dec 16, 2011 08:01:27 (ET)


By Andrew Ackerman
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--Commodity Futures Trading Commission member Bart Chilton is renewing calls to boost regulations of futures merchants in light of failed brokerage MF Global Holdings Ltd. (MFGLQ).

Chilton is calling for Congress to develop a new type of insurance fund to fill customer losses in the event of insolvency, among a series of reforms designed to instill "confidence and trust back into our U.S. derivatives markets."

"The MF Global debacle has highlighted some significant problems with how we treat and deal with customer monies," Chilton said in a letter to the top lawmakers on the House and Senate Agriculture committees, which oversee the CFTC.

The fund would likely be modeled on the Securities Investor Protection Corp. (SIPC), an industry association that insures cash and securities up to $500,000 in customer accounts. No similar fund exists in the futures market.

Until MF Global's collapse, many in the industry assumed the segregation of customer funds from client assets was sufficient protection for investors.

The CFTC has been leading the probe into what happened to more than $1 billion in missing customer funds since the agency as notified of a potential shortfall nearly seven weeks ago. Regulators say MF Global told them about the missing money just hours before the firm filed for bankruptcy on Oct. 31.

Chilton, a Democrat, has generally been a supporter of greater regulation of financial markets mandates by last year's Dodd-Frank law.

CFTC Chairman Gary Gensler said last week that he hasn't developed an opinion about the merits of a SIPC-like fund for futures firms. But he said the agency would consider additional ways "to enhance customer protections."

Though the CFTC voted last week to tighten restrictions on how futures firms invest customer money, Chilton said in his letter that the commission ought to consider additional tightening. The CFTC should limit futures firms to investing customer funds in domestic government securities, he said.

Chilton also said CFTC needs to work with Congress to review whether to harmonize the law with other countries that have adopted "customer consent to investment."

-By Andrew Ackerman, Dow Jones Newswires; 202-569-8390; [e-mail]

--Jamila Trindle contributed to this story.