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CFTC: MF is 'poster child' for regulation

Monday 7 November 2011 - by Andrew Hickley

Bart Chilton - photo by CFTC

The collapse of brokerage MF Global has been labelled the "new poster child for regulation" a leading US regulator has claimed.

The Commodity Futures Trading Commission's Bart Chilton said that the brokerage's failure justifies a new CFTC rule that will ban the practice of internal repo transfers that were used by the firm.

It could also see the CTFC's proposals being further tightened and its intensity of supervision being enhanced, commissioner Chilton added.

MF Global filed for Chapter 11 bankruptcy last week having lost a number of big bets against sovereign debt markets.

It has since caused concern after allegations were made that the firm failed to segregate customer and company funds - a move that CFTC chief Gary Gensler said should be maintained "at all times".


The CFTC has proposed that the repurchasing agreements, where customer funds can be internally traded for collateral, should be banned. MF Global was among the firms that opposed the changes when replying to an earlier consultation, Chilton said, speaking on Friday.

Amid growing political furore in the US over the impact of regulation upon the stuttering economy, the commissioner argued that the brokerage's collapse provided fresh justification of the need for regulation of the financial sector.

"We don't need to recall the events of 2008 to have a fresh whack-in-the-face reminder that we need appropriate regulations in place now," he told the annual meeting of Independent Gasoline Marketers of America in Washington.

"MF Global is the new poster child for why thoughtful financial regulation is needed, now more than ever."

The case emphasises that the CFTC must also increase its efforts to ensure that its staff conduct "routine and deep" data analysis in conjunction with the rule change, Chilton claimed.

"Firms no longer should be able to simply produce bottom line totals of segregated funds, but we should also get to see the actual statements and supporting materials to ensure that the funds are really there," he argued.

Chilton said that firms involved with segregated accounts should "show us the money" and must ensure that customer and company funds are kept apart 365 days a year "so that even intra-day transfers that could negatively affect customer funds are detected and prohibited".

"And let me be clear: if we catch someone doing that, we will use our prosecutorial authorities aggressively," he said.

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Email: andrew.hickley@gfsnews.com


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