CFTC rule boosts oversight of futures, swaps markets

Thu Feb 9, 2012 2:56pm EST

* CFTC turns back the clock with "new" rule

* Measure increases CFTC oversight of CPOs, CTAs

* Latest action by CFTC following MF Global collapse

By Christopher Doering

WASHINGTON, Feb 9 (Reuters) - The Commodity Futures Trading Commission approved a rule on Thursday designed to shed more light on trading in the futures and swaps markets, the agency's latest effort to protect customers following the collapse of MF Global last October.

The rule, which was approved 4-1 in private by the CFTC's five commissioners, would require investment companies such as mutual funds that invest in commodities to register with the CFTC. It reinstates measures in place prior to 2003.

The CFTC said the rule would help the agency increase its oversight of commodity pool operators - an entity where funds from multiple investors are combined to trade or to invest - and commodity trading advisors.

"The financial crisis, and now the collapse of MF Global, highlights the need for more accessible and effective customer protection measures," said Scott O'Malia, a Republican CFTC commissioner.

"These rule changes will remove a major loophole that has allowed certain funds to market and sell investments in commodity futures markets, but remain outside the jurisdiction of the Commission," he said.

The changes were first proposed by the National Futures Association, one of the CFTC's self-regulatory organizations, in August of 2010.

Jill Sommers, the other Republican commissioner, was the lone dissenter. She said the CFTC went beyond what was needed to address NFA's concerns, and it risks "disrupting a significant number of business structures."

"While I agree that the Commission has a regulatory interest in the activities of commodity pools, this overstates the case and gives a false impression that the data we gather will enable us to actively monitor pools for systemic risk, that we have the resources to do so, and that we will do so," she said in a statement.

The rule, which was first proposed by the CFTC on January 26, 2011, will go into effect 60 days after its published in the government's federal diary.

MF Global filed for bankruptcy on Oct. 31 after investors and customers became rattled over the firm's $6.3 billion bet on European sovereign debt. Investigators are still trying to find more than $600 million in missing customer money.

The collapse increased pressure on the regulator to ramp up efforts to boost protection and segregation of customer collateral.

In recent weeks, the CFTC approved rules that restrict the investment of futures customer funds, and another that protects cleared swaps customer contracts and collateral. It also recently concluded an industry-wide spot check of major futures brokerages, and did not find any material breaches of customer fund protections.

In addition, Reuters reported earlier this month that Gary Gensler, the chairman of the CFTC, ordered an extensive review of how futures brokerages are regulated by the agency.

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