The head of the Commodity Futures Trading Commission has ordered an extensive review of how futures brokerages are regulated, following the collapse of MF Global three months ago, a CFTC official told Reuters on Wednesday.
CFTC Chairman Gary Gensler ordered the review after questions emerged about whether the CFTC or exchange-operator CME Group, whose self-regulatory arm served as MF Global's front-line regulator, could have done more to prevent the firm's collapse and safeguard customer money.
MF Global had nearly a half dozen regulators policing various parts of the firm, but no single regulator was responsible for the whole company.
Gensler has directed the agency's Division of Swap Dealer and Intermediary Oversight to find ways to bolster agency regulations for how it oversees and what it requires from self-regulatory organizations and futures commission merchants such as MF Global, the official told Reuters.
The review includes changes to the CFTC's own internal policies and procedures and possible calls for congressional action. It is not clear what the specific recommendations will say.
"There is a whole package of recommendations that staff has drafted at the direction of the chairman to bolster our current regulations," said the CFTC official, who was not authorized to speak on the record.
"I think, absolutely, I would say these are a direct response" to MF Global, the individual said.
A CFTC spokesman could not be reached for comment.
MF Global filed for bankruptcy on Oct. 31 after investors and customers became rattled over the firm's $6.3 billion bet on European sovereign debt. Investigators are still trying to find more than $600 million in missing customer money.
A House Financial Services subcommittee is holding a hearing on Thursday with Michael Roseman, the former chief risk officer who is said to have raised red flags about aggressive trading bets at MF Global, and with representatives from the ratings agencies.
Under the current regulatory system, the CFTC does not examine any futures commission merchants such as MF Global itself and instead is reliant on self-regulatory organizations such as CME to oversee them. Gensler has said it is not an ideal system.
The CME has since defended the SRO model. Only a few days before MF Global's bankruptcy, CME examiners verified that MF Global's segregated customer fund account was overcollateralized. CME has since said that MF Global duped its examiners.
Some CFTC officials have heavily criticized the SRO model.