The collapse of MF Global on Halloween more than a year ago is still resonating in the commodity community. Last week the inspector general of the Commodity Futures Trading Commission released a report on the organization's oversight of the MF Global collapse. When the brokerage fell - caused by a bad bet on Euro debt - it had a shortfall of $1.6 billion in customer funds.
The report was made at the request of Senator Richard Shelby, D-Ala., and looks at the oversight leading up to MF Global's collapse, CFTC Chairman Gary Gensler's initial role and subsequent recusal because of a past relationship with the head of MF Global - Jon Corzine - and lessons that can be learned. This is important timing as CFTC has enhanced powers under the new Dodd-Frank legislation created in the wake of the 2008 financial collapse.
In a summary of the report from PointofLaw.com, a service of the Center for Legal Policy at the Manhattan Institute, there are key lessons to be learned. The Point of Law summary notes that CFTS needs to be more rigorous in its examinations and that the agency didn't have formal procedures in place to guide its review of MF Global. The report also notes that a lot of regulators were involved and that those regulators "seem to have coordinated mostly by happenstance." There is a need for greater coordination.
For farmers who got hit by the collapse of MF Global, the report offers little solace, though much of the money is being returned. The event shook the market and confidence by farmers who trust brokers with their funds for trades. While the MF Global debacle was caused by a failure in judgment by leaders of the firm, there's a concern that this could be repeated. A more criminal event - the failure of Peregrine Financial after MF Global was caused by criminal fraud and is also a black eye on the industry.
Hopefully the lessons that have been learned from MF Global will be put to work in case another challenge of segregated funds arises. See the Point of Law review of the report.