Commodity Futures Trading Commission Finalizes Rule To Protect Customer Funds

The CFTC unanimously has approved tighter limits on how brokerage firms can use customer funds.

The Commodity Futures Trading Commission (CFTC) unanimously approved on Monday tighter limits on how brokerage firms can use customer funds.

The measure was finalized in a 5-0 vote. The rule was initially proposed by the CFTC in October 2010, but stalled after a lack of support from other commissioners, reports Reuters.

The now-bankrupt MF Global, along with other firms, had previously encouraged the U.S. futures regulator to delay the measure.

They argued that any changes would hurt their customers and firms, depriving them of a key source of income, namely interest revenue on customer accounts.

MF Global filed for bankruptcy on October 31 after investors became repelled by its large bets on European sovereign debt, Reuters reports.

The firm is now being investigated for potentially raiding customer funds for its own use. Hundreds of millions of dollars in customer money is still unaccounted for.

The rule prevents brokerage firms, known as futures commission merchants, from conducting "in-house" repurchase transactions.

It also restricts firms from investing customer money in foreign sovereign debt, thus preventing a possible breach of client funds, reports Reuters.

It is not clear whether the rule would have been able to prevent MF Global from misappropriating as much as $1.2 billion in customer money.

The finalization of the rule was speeded up after the broker's collapse dented faith in regulators' ability to protect commodity traders. The CFTC’s Mark Wetjen said, "Futures customers generally and, indeed, the public are rightly demanding that the commission take immediate steps -- even before the MF Global investigation is complete -- to reassure them we are doing everything we can to safeguard customer money,” Reuters reports. Wetjen said that, while the CFTC "cannot be sure the present rule will address specific issues that are ultimately raised by the MF Global case," it's an important step toward protecting customer funds.
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