U.S. Commodity Futures Trading Commission (CFTC) commissioner Scott D. O'Malia says the MF Global investigation is unique because customer funds are missing from the segregated account. This differs from the Lehman Brothers Inc. bankruptcy, in which there were not shortfalls in the segregated account.
In a statement issued this morning, O'Malia said he supports the Commission's efforts to conduct a thorough investigation to determine what happened with the customer funds and how those funds can be returned as soon as possible -- and punish any wrongdoing.
"Since the Securities Investor Protection Corporation (SIPC) placed MF Global into insolvency on October 31st, MF Global customers with positions have received an inadequate percentage of their total funds," says O'Malia. "Customers that thought it prudent to liquidate their positions prior to the insolvency (the "Cash-Only Customers") have received none of the funds used to secure their trading at all. The inability of MF Global customers as a whole to access their funds has affected trading in futures markets, and has shaken public confidence in our customer protection regime."
Additionally, O'Malia says to renew public confidence in segregation and to assure the public that MF Global is an isolated incident, the Commission should immediately take action. "First and foremost, we must reconsider the proposal that would limit investments of segregated customer funds. Somewhat prematurely, this proposal is being hailed as the solution to the MF Global problem," he says. "At this time, we have not identified the cause of the segregation shortfall, and any action that we take obviously cannot be the solution until we have greater clarification on what caused the problem. In general, however, the Commission should focus on ensuring that intermediaries are maintaining segregation, properly diversifying their customer cash investments, accurately and transparently valuing such investments, and applying appropriate haircuts."
Link to full statement by O'Malia