WASHINGTON — The Commodity Futures Trading Commission is considering broadening protections for customer money in both the over-the-counter derivatives and futures markets after the failure of broker-dealer MF Global left customers short as much as $1.2 billion.
The CFTC is expected to pass a proposal Wednesday for how customer money is treated for over-the-counter derivatives or "swaps" that many market participants have argued should be stronger after MF Global revealed risks in the current system.
CFTC Chairman Gary Gensler said in a statement prepared for the meeting that the commission is considering both enhanced protections for the swaps market as well as perhaps eventually extending those protections to the futures market.
"We are continuing to gather thoughtful input as to how we might build upon today's segregation rule to further protect customers," Gensler said.
The CFTC had been working on new rules for the swaps market long before MF Global failed as part of an overhaul Congress set in motion with the Dodd-Frank law in July 2010.
Regulators are still investigating what happened to customers' money in the final days before MF Global filed for bankruptcy on Oct. 31 and the unprecedented breach of the futures rules has shifted the debate on the new swaps rules toward stricter protections for customers.
Other commissioners have also indicated a need to review futures regulations, but it is unclear whether changes would include changes to the customer account structure.
"A year ago I was very concerned about the costs associated with greater protections," Republican Commissioner Jill Sommers said in an interview Tuesday. "After MF Global, we look at those issues a lot differently now," she said.
But Sommers said it is premature to put any new protections in place before the end of the MF Global investigation, which she is leading.
The commission is also slated to vote on rules for how swap dealers are registered and regulated as well as the commission's version of the Volcker rule, which Gensler said "is consistent with the joint rule proposed by other financial regulators last fall."
Gensler also said that he hoped to finalize the definitions for "swap dealer" and "swap" during the first quarter of 2012.
