MF Global Bankruptcy, Missing Customer Funds, and Proposals for Reform [August 1, 2013]   [open pdf - 1MB]

"On October 31, 2011, MF Global, a large brokerage firm registered with the Securities and Exchange Commission (SEC) as a broker-dealer and with the Commodity Futures Trading Commission (CFTC) as a futures commission merchant (FCM), filed for bankruptcy, marking the eighth-largest bankruptcy in U.S. history. Based on the subsequent investigation by the bankruptcy trustee, it appears that the firm failed as a result of a 'run on the bank' by customers seeking withdrawals, combined with increased margin calls on the firm's proprietary trading positions related to distressed European debt, which the firm could not meet. […] The MF Global failure raised questions about whether enforcement mechanisms for segregation of futures market customer funds were reliable--particularly in times of unusual stress. It also provided an opportunity to evaluate the effectiveness of regulatory cooperation during a rapid failure of a large, complex financial institution. It prompted a number of policy questions: is the enforcement of segregation requirements for futures customers' accounts sufficient for unusual market conditions, such as a run? Should some type of SIPC-like [Securities Investor Protection Corporation] insurance, such as is offered for customers of securities broker-dealers, be contemplated for futures customers or would costs be too great? The CFTC on November 14, 2012, proposed a rule aimed at increasing disclosure requirements for futures brokers to give customers greater accounting for their funds. This report provides information about MF Global's failure, the rules for handling of customer funds, the enforcement of those rules, the bankruptcy proceeding, related policy issues and reform proposals to ensure greater protections for futures customers. It will be updated as events warrant."

Report Number:
CRS Report for Congress, R42091
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