In the wake of MF Global’s high-profile bankruptcy and legal troubles, CNN wrote about a rule proposed by the Commodity Futures Trading Commission in 2010 to prevent broker-dealers from investing client funds in sovereign debt. MF Global had made huge investments in European sovereign debt, though it’s not yet clear if the firm used any client funds to do so, according to the article.
In Dec. 2010, MF Global and a rival trading firm wrote a letter arguing against the proposed rule, which is still pending today. According to the article:
Attorneys for the two firms argued the new rule would “eliminate a liquid, secure, profitable and necessary category of investment” for futures dealers.”We believe the current investment criteria set forth under (existing rules) have worked, including over the past two years of market instability and uncertainty — the ultimate stress test,” said the letter.
Ed Pekarek, the assistant director of the Investor Rights Clinic of John Jay Legal Services and a Pace University visiting law professor, characterized the comments as “dripping with irony.”
“This certainly seems to be a case where regulators came close to thwarting this debacle, or at a minimum, may have lessened its severity greatly,” Pekarek said. “Regulators got it right, and recognized a year ago that sovereign debt exposure was far from riskless.”
Indeed, with the demise of MF Global, the concern on Wall Street is that the CFTC’s proposed rule is now more likely to be passed.
Read the full story here.