Is There A SIPC In The Futures?


By Donald L. Horwitz - MarketsReformWiki Contributing Editor

Managing Director, Oyster Consulting, LLC


Not to be too blunt, but the collapse of MF Global is a disaster for the futures industry. This is the same industry that has been able to stand before Congress every time there has been a market crash (1987, 1994, 2008, to mention a few) and say proudly that the customer segregation system works well. Now, however, that is not necessarily the case. And, more importantly, this turn of events is happening just as the regulatory agencies, Congress and the industry are trying to implement the final set of rule changes mandated by the Dodd-Frank Act of 2010.

Why is this collapse such a problem, you may ask? After all this was not the kind of systemic event that the country and the financial system faced in 2008 when Lehman, Bear Stearns, and AIG failed, and Merrill Lynch was rescued by Bank of America. While a nice sized and respectable firm, MF Global was not a Morgan Stanley or Goldman Sachs.

The real issue facing the industry is not what happened to the customer funds that were required to be set aside in a segregated account at a bank, (although clearly that detail is critical to the innocent clients affected by the shortfall) but how did it happen?

The segregation provisions of the Commodity Exchange Act and the regulations promulgated thereunder by the CFTC, govern the holding, investing and use of these funds so that if a futures commission merchant (FCM) does run into a solvency issue, at least the customer funds are safe. Moreover, the CFTC and the self-regulator for the firm (in this case the CME Group) are required to periodically audit firms for compliance with these rules. If the segregation computation is incorrect, alarm bells go off and the firm must immediately come back into compliance. The firm could also be tagged with fines and penalties.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© MarketsReformWiki | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.