MFA submitted a comment letter to the Commodity Futures Trading Commission (CFTC) on its proposed rulemaking on “Enhancing Protections Afforded Customers and Customer Funds Held by Futures Commission Merchants and Derivatives Clearing Organizations.” In the letter, MFA expressed our concern with the recent MF Global and Peregrine events and applauded the CFTC for recognizing the potential weaknesses in the current customer protection regime and proposing thoughtful measures to increase the protection and confidence of customers. To assist the CFTC in furthering its customer protection goals, we encouraged the CFTC to:
(1) require each futures commission merchant (FCM) to make its schedules about held segregation amounts, secured amounts and cleared swaps, cleared swaps customer segregation amounts, as well as summary balance sheet and income statement information for the most recent 12 months publicly available each month;
(2) confirm that the FCM capital charge for undermargined customer, noncustomer and omnibus accounts and the FCM requirement to maintain residual interest in excess of its customers’ margin deficits are offsetting requirements, such that the two obligations would not be duplicative;
(3) not amend the proposed FCM capital charge to reduce the time period by when an FCM must incur a capital charge for undermargined accounts to one business day, but rather retain the existing two business and three business day requirements;
(4) modify the FCM residual interest requirement so that it is not a continuous obligation, but instead a “point of time” obligation that requires FCMs to ensure they maintain sufficient residual interest as of the close of business Eastern Time on the business day after the FCM issues a customer’s margin call;
(5) re-evaluate annually the proposed rules’ efficacy and the need for additional enhancements to the customer protection regime;
(6) continue to evaluate the viability of a full physical segregation option for collateral posted by customers on their cleared swaps positions; and,
(7) ensure that the proposed rules facilitate portfolio margining and are consistent with existing CFTC guidance in that area.