CHICAGO (Reuters) - Futures brokers would need to get approval from a top executive before making big withdrawals from customer accounts under a rule now pending and referred to in the industry as the “Corzine rule”, after MF Global’s former CEO Jon Corzine.
The proposal is one of several planned changes to futures industry practices prompted by MF Global’s collapse last October and the disappearance of funds from customer accounts.
The National Futures Association’s board has approved the proposed rule along with several others, and submitted them to the Commodity Futures Trading Commission for approval, the NFA said on Tuesday.
Exchanges and regulators had boasted for decades that rules requiring brokers not to use customer funds for their own purposes meant those customer funds were safe.
After MF Global went bankrupt, some $1.6 billion of customer money went missing, and more than six months later has still to be accounted for.
Hundreds of millions of dollars in excess customer funds were withdrawn in the broker’s final days, and CME Group - MF Global’s frontline regulator, and the largest of several exchange operators that helped craft the new rules -- has said that much of the money was improperly transferred from customer accounts to MF Global’s own accounts.
Corzine has testified he never told anyone to take customer funds to cover the broker’s own bills. He has not been accused of wrongdoing.
Under the proposed Corzine rule, futures brokers would need to get written approval from the chief executive, the chief financial officer or another designated officer for the withdrawal of more than 25 percent of a customer’s excess funds.
Excess customer funds are funds held by the broker above and beyond what is needed to back a customer’s trades.
Under existing industry rules there is no limitation on the amount a broker could move from a customer’s excess funds.
The proposed rules also require brokerage firms to maintain written policies about how they guard against using customer money for their own purposes.
“These new requirements will help begin the process of restoring public confidence in the financial integrity of customer segregated funds,” NFA chief Dan Roth said in a statement.
New rules will also require futures brokers to provide more financial and operational information to NFA, some of which NFA will publish on its website.
Reporting by Ann Saphir; editing by Carol Bishopric