Tags: CFTC | OMalia | Gensler | proposal

CFTC Loses Way to Customer Protection

By    |   Monday, 04 November 2013 01:25 PM

The Commodity Futures Trading Commission (CFTC) met on Oct. 30 to consider a proposed rule titled "Enhancing Protections for Futures Customers and Other Businesses."

The Commission approved the proposal by a 3-1 vote, with Commissioner Scott O'Malia dissenting, and it voted 3-1 to reject an amendment offered by O'Malia.

In separate votes taken before the meeting, the Commission unanimously approved rules to allow customers in uncleared swap transactions to have their initial margins segregated, and it approved a rule on ownership and control reporting that requires that required forms be filed electronically.

In his opening statement, CFTC Chairman Gary Gensler proclaimed, "Segregation of customer funds is the core foundation of the commodity futures and swaps markets. Segregation must be maintained at all times. That means every moment of every day."

Gensler listed six reasons why he supported the proposal, then concluded, "It is important that we look very closely at the law and ensure that one customer's funds or property are not used in some way to secure or guarantee other people's accounts."

He called the Commission's action the result of two years of work on a series of six rules "to ensure that customers have confidence that their funds are segregated and protected."

Unfortunately, it is necessary to report from the "Twilight Zone" that is the CFTC that the proposal doesn't do what Gensler says it does, and the staff tried to point this out to him several times during the meeting, to no avail. Instead of this action representing the culmination of a two-year journey, what the Commission did was to extend the journey for at least another five years, and the destination is uncertain.

Instead of faithfully adhering to the "core foundation" principle as enunciated by Gensler, the Commission voted to "strike a balance" that will allow relatively small futures commission merchants (FCMs) to continue violating the rules in order to allow them to continue doing this business rather than having to cut back their role to something called an "introducing broker."

For readers who may do business with FCMs and want to comment on this proposal, there are 295 questions to consider, and commenters have 90 days to submit their comments. One would hope that somewhere in this process, someone will get the message through that the CFTC needs to follow its rules, which date back to 1937.

As bizarre as the meeting was, it took another strange turn at the end when O'Malia, noting that the agenda calls for consideration of the Volcker rule by the end of the year, asked Gensler if he could get a copy so that he could start reading it now.

Gensler said no, the staff is still working on it, and it's not ready for him to see.

The point O'Malia was trying to get a cross is that if the staff is working on this and has a draft, he should be able to see it; also to no avail.

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The Commodity Futures Trading Commission (CFTC) met on Oct. 30 to consider a proposed rule titled "Enhancing Protections for Futures Customers and Other Businesses."
Monday, 04 November 2013 01:25 PM
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