When someone robs a bank and gets away with the money, they have something fungible (cash) and easily hid. While the authorities may be able to trace the serial numbers on the bills as they start to show up in circulation, there are no other official records for the physical bills to be traced.
The MF Global situation is different. Money is missing, like in a bank robbery, but the money all moved into and out of MF Global’s bank accounts where there are all kinds of physical and virtual records to trace the whereabouts and the end location of said funds.
There is a rational expectation that exchange regulators, market regulators, bank regulators, FBI investigators and Congressional investigators ought to be able to follow this chain of banking records to trace/discover where the money is. In fact, if they can’t, then this is a stinging indictment of our banking and brokerage system and God help us all.
If the MF Global money had been stolen by a bank robber who put the cold hard cash in a secret hiding place, it would be one thing. However, in the MF Global case, the money is somewhere identifiable, traceable and verifiable.
Recoverable is another thing. I understand that. There is a reason the securities side regulators seized the opportunity to put a SIPA trustee in charge of the bankruptcy of a firm with 400 some securities accounts and 35,000 futures accounts. They wanted an advantage and wanted their laws to have priority.
The securities side has put the futures side at a distinct disadvantage. And of course, it does not help that the lead futures regulator, CFTC Chairman Gary Gensler, has had to recuse himself from the matter due to personal ties to the MF Global former CEO Jon Corzine. But forget that. It does not matter.
What matters is that regardless of whose protocols, regulations, laws or precedent, there should be transparency to what happened to the money. Every time a client sends in money via wire transfer, there is a Federal Reserve ID attached to that wire. Every check that is written goes through the Federal Reserve check system. There is a record.
With so many regulators and investigators looking into the MF Global situation, and so little progress made or at least disclosed, the time is ripe for an independent task force to investigate this. There is too much regulatory arbitrage, or the threat of it, from so many competing regulatory and investigatory bodies. There is too much self-interest and not enough public interest.
I concur with Senator Pat Roberts that an independent task force must be formed to investigate and report on the MF Global bankruptcy. The NFA and the Self Regulatory Organization arms of the exchanges have formed their Super Committee to look for answers to what is broken. The Futures Industry Association has their competing Task Force of members. We, John Lothian News, have FuturesCrowd.com to help find ways to restore customer confidence in the markets.
But what we really need is that Pat Roberts Task Force, headed by CFTC Commissioner Jill Sommers and full of futures industry experts, industry stakeholders and others, to investigate all of this thoroughly. The primary purpose of the Task Force should be to find the money, or at least publicly identify its whereabouts.
This was not a bank robbery, but the situation is robbing us of our trust in the institutions, regulators and regulations that protect us as we participate in the exchange traded derivatives markets.