WASHINGTON Nov 4 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 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,
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)