Friday, December 02, 2011

In letter to CFTC IG, Senator Shelby Requests Report on Agency’s Oversight of MF Global

Senator Richard Shelby (R-ALA), Ranking Member on the Senate Banking Committee, sent a letter to CFTC Inspector General Roy Lavik requesting a report on the CFTC’s oversight and regulation of MF Global. Senator Shelby also requested that the IG examine whether CFTC Chairman Gary Gensler’s recusal from matters now and in the past are consistent with the agency’s official recusal policy.

In the letter, Senator Shelby noted that MF Global is currently subject to a liquidation proceeding initiated by the Securities Investor Protection Corporation (SIPC). Recently, the Trustee for the liquidation indicated that there appears to be a substantial shortfall in the funds that should have been segregated by MF Global for the benefit of its commodity account customers. The Ranking Member said that the Department of Justice, the CFTC, the SEC, the Trustee, and the SIPC are still trying to locate the missing customer funds. In the meantime, thousands of customers have been denied access to their funds and, according to Senator Shelby, are consequently facing tremendous hardships.

In the Senator’s view, the fact that all of the customer funds cannot be accounted for raises serious public policy concerns. He emphasized that the CFTC has a duty to ensure that customer commodity accounts are protected and that customers retain access to their funds in the event of the bankruptcy of a futures commission merchant. After the immediate concerns about customers’ access to their funds are addressed, the Senator wants the CFTC to review its oversight and regulation of MFGlobal and report its findings to the Senate Banking Committee. In the meantime, the CFTC should make any necessary preparations to ensure that all of the relevant documents for such a review are preserved and take any other appropriate actions needed to ensure that you it can conduct a thorough review of the matter.

Specifically, Senator Shelby asked that the report contain a detailed account of the CFTC’s role in overseeing and regulating MF Global, including an assessment of whether its oversight and regulation of the firm differed in any material way from its oversight and regulation of other futures commission merchants. The report should also contain a detailed account of how the CFTC coordinated with the Chicago Mercantile Exchange, the designated self-regulatory organization for MF Global, in overseeing the firm’s customer segregated funds.

The Senator also wants to see a summary of relevant examination manuals or other guidance for staff involved in overseeing and regulating MF Global or monitoring the CME’s oversight of the firm, as well as an analysis of whether and how the CFTC’s oversight of the firm changed after the CFTC’s enforcement actions against MF Global in December 2007 and December 2009;

Further, the report should contain an analysis of the CFTC’s role in the determination that caused MF Global to increase its net capital in August 2011; and an analysis of the CFTC’s activities with respect to the firm in the week prior to the liquidation.

Regarding the Chairman’s recusal, the report should analyze whether Chairman Gensler’s decision to recuse himself from matters relating to the MF Global investigation is consistent with the CFTC’s official recusal policy; and whether and how a decision by Chairman Gensler to recuse himself from previous matters relating to the firm would have been consistent with the CFTC’s official recusal policy.

No comments: