Statement on MF Global: Next Steps (Speech)

Statement of CFTC Commissioner Scott O'Malia on MF Global

In his statement, Commissioner O'Malia points out that unlike the Lehman Brothers Inc. bankruptcy where there was no shortfall in the segregated account, customer funds are missing from the segregated account in MF Global, which complicates efforts to make customers whole, especially those whose accounts hold only cash. O'Malia urges a quicker resolution so that Cash-Only customers, who have not received any of their money, can participate in the distribution along with customers with open positions.

O'Malia calls for the CFTC to reconsider the proposal that would limit investments of segregated customer funds. Noting that "somewhat prematurely, this proposal is being hailed as the solution to the MF Global problem," however the CFTC has not identified the cause of the segregation shortfall, and therefore any action that it takes "obviously cannot be the solution until we have greater clarification on what caused the problem."

O'Malia also urges the CFTC to re-examine its proposal for the segregation of swaps customer funds, noting that the proposal relies on the Commission actively intervening in insolvency proceedings to facilitate transfer of customer positions and collateral in the face of a shortfall, even if such action brings the Commission into conflict with the trustee, but the CFTC 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."

Cross References: CEA Section 4d; CFTC Rules, Part 190; CFTC Rule 1.25; 75 FR 67642; 76 FR 35141