WASHINGTON — With efforts ongoing to resolve customer claims in the MF Global Inc. failure, the Commodity Futures Trading Commission finalized tougher rules Monday for segregating customer funds from a derivatives firm's trading activities.
An estimated $1 billion in funds from MF Global's customer accounts was reported missing as the firm — hurt by bad bets on European sovereign debt — declared bankruptcy Oct. 31.
The commission last year had proposed strengthening restrictions on how firms can use segregated funds, well before the MF Global collapse. But CFTC officials have touted the tougher regime amid a probe into whether MF Global improperly raided customer accounts to fund its operations. The final rule, part of which was required under last year's Dodd-Frank Act, was approved unanimously by the commission's five members.
"As recent events have highlighted, the protection and preservation of customer funds is fundamental to our markets," Scott D. O'Malia, who sits on the commission, said in an opening statement at the CFTC meeting.
The Commodity Exchange Act generally allows customer funds to be used only for a list of certain permitted investments, but in the past the CFTC had provided exemptions from that list, such as the ability to invest money from customer accounts in certain highly-rated sovereign debt instruments. Yet that ability is limited under the new rule.
The regulation also stops firms from taking customer money and lending it to an affiliate through repurchase agreements.
"I believe that this rule is critical for the safeguarding of customer money," said CFTC Chairman Gary Gensler, who voted in support of the final rule despite having recused himself from the MF Global probe, citing his past professional work with former MF Global chief executive Jon Corzine.
Yet some commission members said the rules on segregating customer money could go further.
"As I emphasized in a statement on MF Global, the commission must not become complacent," said O'Malia. "It must take additional action to bolster public confidence in our customer protection regime, including enhancing transparency into the risks that our intermediaries assume."
The final rule also addresses more general provisions required in Dodd-Frank that federal agencies mitigate their reliance on using credit rating agencies in setting regulatory policy.
