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Nov 24

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New Congressional report renews the call to combine the SEC and CFTC

Multiple prior studies suggested that the Commodities Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) be combined, but this has not occurred. A November 15, 2012 report raises this issue again, this time in connection with MF Global’s bankruptcy.

This article describes the malfeasance at MF Global that led to its bankruptcy. This article is based on the June 2012 SIPA Trustee report for MF Global. The current Congressional report similarly places considerable blame on MF Global’s management, but also looks at the regulatory situation that allowed this disaster to occur. The report concludes “The SEC and the CFTC Failed to Share Critical Information about MF Global with One Another, Leaving Each Regulator with an Incomplete Understanding of the Company’s Financial Health”

The details of this conclusion include:

Even when the SEC and the CFTC finally began communicating with one another during MF Global’s last week of operations, the agencies often worked at cross-purposes. When MF Global reported that it had set aside $220 million above the amount it was required to hold for its broker-dealer customers, the SEC instructed the company not to transfer any of these funds without prior approval. Nonetheless, the CFTC later instructed the company to transfer the funds to the FCM side of its business. When informed of the transfer, SEC Chairman Mary Schapiro stated that the transfer was “unacceptable” and that the CFTC should not have ordered the transfer without telling the SEC.

Had the SEC and the CFTC coordinated their supervision of MFGI and had they shared critical information about MF Global, they might have gained a more complete understanding of the company’s deteriorating financial health, and they might taken action to better protect the company’s customers and investors before it collapsed.”

With all the attention and related new financial regulation occurring since 2008, one wonders why the call for combining these two overlapping regulators has not gotten more traction.

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/11/new-congressional-report-renews-the-call-to-combine-the-sec-and-cftc/

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