Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission who has recused himself from the agency’s investigation of MF Global Holdings Ltd. (MF), said the firm didn’t get preferential treatment because of his ties to Jon S. Corzine, the failed broker’s former chairman.
Gensler, in response to questions from reporters after an appearance today at a Securities Industry and Financial Markets Association conference in New York, said the CFTC’s delay of rules governing how brokers can manage client money didn’t show favoritism to MF Global.
“That’s just not the case,” said Gensler, who said he delayed one set of rules in July to give commissioners additional time for review. “I’ve been consistent on this rule, and I allowed more time for others to continue look at it,” he said.
MF Global, the holding company for the broker-dealer run by Corzine, a former New Jersey governor and former Goldman Sachs co-Chief Executive Officer, filed for bankruptcy protection on Oct. 31 after making a $6.3 billion bet with the firm’s money on European sovereign debt. The bankruptcy trustee and regulators are investigating possible missing funds in customer accounts, and the FBI has joined the probe, according to a person familiar with the matter.
“I believe we have to tighten how investor funds can be used,” Gensler said today. “They’re segregated and must be segregated at every minute of every day. And then if they are invested, they should be invested with good collateral with outside parties, not internally.”
Gensler said he decided to remove himself from the MF Global probe before Senator Charles Grassley, an Iowa Republican, suggested a recusal on Nov. 4.
“I chose to not participate in these potential or possible enforcement matters,” Gensler said at the conference. “I didn’t want my participation to in any way be a distraction.”
The rules delayed by the CFTC in July would limit how brokers can invest client money with affiliates or internally.
Gensler said completing a separate rule governing the segregation of collateral in cleared derivatives is among the agency’s highest priorities.
The collapse of MF Global shows that so-called shadow banks need more regulation and capital, Citigroup Inc. Chief Executive Officer Vikram Pandit said at the conference.
“Shadow banking is really important and prudential regulation can’t stop only at a few firms,” Pandit said.
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