CFTC official warns about rash reforms post-MF Global

Wed Nov 16, 2011 10:46am EST

* CFTC must take quick action after MFG collapse- O'Malia
     * MF Global should act as "teachable moment" for CFTC
     * Regulators still looking for missing $600 mln in funds
     *
     By Christopher Doering
     WASHINGTON, Nov 16 (Reuters) - A U.S. futures regulator on
Wednesday pushed for immediate action in the wake of collapsed
brokerage MF Global, including a requirement that all
intermediaries should hire an independent party to make sure
customers funds are kept separate from the firm's own money.
    Scott O'Malia, a Republican commissioner at the U.S.
Commodity Futures Trading Commission, said in order to show the
public that segregation works and that MF Global was an
isolated incident, it must act quickly.
     However, he warned about going too far with reforms
without full knowledge of what happened at the failed
brokerage.
    "Many have said that the failure of MF Global was not
systemic and that we are lucky. I don't view it in the same
light," O' Malia said in a statement laying out the "next
steps" in dealing with the mess MF Global left behind.
    MF Global filed for bankruptcy on Oct. 31 after investors
and counterparties balked at revelations about the firm's bets
on risky European sovereign debt.
    Roughly $600 million is missing in customer accounts of the
company's brokerage, and the CFTC is among the authorities
investigating whether MF Global may have improperly mixed that
money with its own funds.
    O'Malia said the CFTC must ensure that all intermediaries
are in compliance with segregation requirements. The agency
also must reconsider rules it is crafting to implement the
Dodd-Frank financial reform law.
    In the three-page statement, O'Malia said it's too early to
hail a proposal that would limit investments of segregated
customer funds "as the solution to the MF Global problem."
    He also warned against a plan that would have the CFTC
intervene in insolvency proceedings to facilitate transfer of
customer positions and collateral in the face of a shortfall
    "The Commission has not actively intervened in such a
manner in MF Global, and so it is questionable whether the
Commission would so intervene in the future," O'Malia said.
    In light of MF Global's demise, O'Malia said the CFTC
should ensure that clearing organizations are able to diversify
their membership without introducing risk.
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