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The Resource for the Global Finance Profession

CIEBA Praises Senate Probe of MF Global Collapse

  • By Staff Writers
  • Published: 2012-04-24

Bethesda, MD - April 24, 2012 - The organization representing over 100 of America's largest corporate pension funds praised the U.S. Senate Committee on Banking, Housing & Urban Affairs for taking up the matter of the collapse of MF Global.

"We commend Chairman Tim Johnson and Ranking Member Richard Shelby for holding a hearing today on the 'Lessons Learned and Policy Implications' following the collapse of MF Global," said Deborah Forbes, Executive Director of Committee on Investment of Employee Benefit Assets, or CIEBA.

To protect pension plans from another MF Global-type crisis, CIEBA believes that the U.S. Commodity Futures Trading Commission (CFTC) needs to quickly propose regulations which permit full segregation of pension plan futures, and cleared swaps margin in third-party safekeeping accounts which cannot be accessed by a futures commission merchant (FCM).

"The hearing today shows the critical need for greater protection of customers' futures and cleared swaps margin," said Forbes. In January, the CFTC stated that the agency would move "with dispatch" to propose additional recommendations for safeguarding customer collateral. In light of MF Global, CIEBA is again urging the CFTC to quickly propose regulations which require FCMs to give customers the right to elect full physical segregation of their margin on futures and cleared swaps. "CIEBA welcomes additional auditing and reporting requirements like those suggested at today's hearing," Forbes noted. "However, MF Global was audited, even close to its bankruptcy and yet these audits did not protect customers. "We believe any solution should provide for structural protections against customer margin being tied up in a FCM bankruptcy such as MF Global and against FCMs gaining improper access to client funds, and should also provide transparent recordkeeping of customer assets by an independent, third party custodian. These types of protections were not available for MF Global's customers, many of whom have been tied up in MF Global's bankruptcy since last October."

Forbes noted that "pension plans and mutual funds currently can have their uncleared swap margin held with an independent third party custodian in an account not accessible by a dealer unless the customer defaults but will lose these protections unless the CFTC quickly acts to provide similar protections for cleared swap margin." "Swaps customers, particularly pension plans, need to be assured that their cleared swap collateral is protected," said Forbes. "The new CFTC clearing rules should increase protections for pension assets-not put them at greater risk."

For more information, contact Deborah Forbes at 301.961.8677 or via dforbes@afponline.org.

Copyright © 2015 Association for Financial Professionals, Inc.
All rights reserved.

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