The recommendations are in response to the estimated $1.6 billion in customer-segregated funds allegedly misallocated in the days preceding the Oct. 31 bankruptcy filing of MF Global Inc. The NGFA's initial recommendations for addressing the aftermath of the MF Global bankruptcy and its adverse impact on entities with customer-segregated funds include:

  • The CFTC should require daily reporting of segregated fund positions by futures commission merchants (FCMs) to both their Self-Regulatory Organization (SRO) and to the CFTC.
  • The CFTC should require daily reporting of segregated fund investments by FCMs, detailed by maturity and quality, to both their SRO and to the CFTC.
  • The CFTC should conduct a formal review of FCM investment options for customer funds, with a view as to whether the agency should further limit allowable investments only to very safe instruments.
  • The CFTC should require reporting by FCMs to their SRO and to the CFTC of significant changes in investment policies or holdings.
  • FCMs should be required to provide greater transparency to customers of where customer funds are invested, potentially achieved through such means as posting on the CFTC website, FCM websites and/or publication in customer prospectuses.
  • The CFTC and SROs should enhance monitoring of FCM reporting. Both sets of regulators should conduct more detailed and more frequent audits, as well as unannounced spot checks of FCMs.
  • To assign accountability and to aid in establishing that fraudulent activity has occurred in the event customer funds are misappropriated, the CFTC should require the signature of two authorized principals of an FCM, such as the chief executive officer, chief financial officer or other senior officers, to move funds out of segregated customer fund accounts to non-customer accounts.
  • FCMs should be required to provide immediate notice to their SRO and to the CFTC if the firm moves more than a specified percentage (to be determined by the CFTC) of excess segregated funds to non-customer accounts.
  • FCMs should be required by their SRO periodically to certify policies and procedures to ensure the safeguarding of customer-segregated accounts and compliance with applicable laws and regulations regarding such accounts. All SRO examinations should require principals of FCMs to certify that policies and procedures are adequate, effective and being observed by the FCM, the NGFA said. At least annually, SROs should be required by the CFTC to review policies and procedures to determine adequacy and compliance.
  • A rigorous review by the CFTC of capital requirements for FCMs and broker-dealers needs to be conducted, with a view to scrutinizing the current practice of allowing double-counting of required capital when a firm operates as both an FCM and a broker-dealer.