WASHINGTON The U.S. futures regulator was encouraged by bankrupt MF Global to delay work on a rule that would prohibit brokerage firms from borrowing money from their own customers, said a top official who called the company "the new poster child for regulation."
The Commodity Futures Trading Commission has proposed a rule under its Dodd-Frank authority that would end a practice allowing a firm to use a customers' funds to make "proprietary" trades for its own accounts, a complex process where the firm basically gives a loan to itself. The practice is legal today.
"Many firms, including MF Global and Senator Corzine specifically, have asked us to hold back on tightening up our regulations. They didn't want that rule to go into effect," Bart Chilton, a Democratic commissioner at the CFTC, said in prepared remarks obtained by Reuters.
"In fact, they made a good case that we needed to re-open our comment period to accept additional comments -- something we have done on many rules. At this point, however, I think we have seen and heard quite enough on this rule and I have urged that we move forward on it at the very earliest opportunity," said Chilton, who was scheduled to speak on Friday before the Society of Independent Gasoline Marketers of America.
U.S. regulators have launched a sweeping review into the business practices of failed futures brokerage MF Global as they search for more than $600 million (374 million pounds) in missing customer money. The FBI also has shown a preliminary interest in regulatory probes looking into the missing funds.
CME Group, the biggest U.S. futures exchange operator, said this week that MF Global appeared to have made "transfers of customer segregated funds in a manner that may have been designed to avoid detection.
Regulators are still conducting a review into the lost funds, and there is no timetable for when it will be completed, sources say.
During the summer, MF Global Chief Jon Corzine and others from the firm had two conference calls on July 20 with the staff of the CFTC. In one of those calls, CFTC Chairman Gary Gensler was a participant.
The calls, according to a summary posted on the regulatory agency's website, centered on investing a customers' cash collateral, known as margin in the industry. In the call Gensler participated in, part of the conversation involved a discussion over repurchase agreements.
After a U.S. Senate hearing on Thursday, Gensler told reporters he has not personally spoken to Corzine since the firm filed for bankruptcy protection on Monday.
In his speech, Chilton also called on the CFTC and exchanges to do what he called "routine and robust deep data dives" on segregated accounts. He said regulators need to go beyond the balance sheets and look for the supporting documents to back up those records.
"No longer can we simply accept bottom line totals on balance sheets. These guys need to do a Tom Cruise and show us the money," he said, referencing the popular phrase uttered by characters in the 1996 movie "Jerry Maguire."
In an interview, Chilton said he has talked with his fellow commissioners at the CFTC this week about the enhanced data collection and so far has "gotten a pretty good reception" on the idea.
(Editing by Muralikumar Anantharaman)