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Peterson urges CFTC to use MF Global lessons in reform

Rep. Collin Peterson, D-Minn.
As the Commodity Futures Trading Commission considered a rule on swaps today, House Agriculture Committee ranking member Collin Peterson, D-Minn., wrote the commissioners that the loss of customers’ funds in the MF Global Holdings Inc. bankruptcy shows the need to protect swaps users from similar problems.

“Just as futures contracts are widely traded and cleared on exchanges and clearinghouses respectively, the Dodd-Frank Act envisions more and more swaps being executed on exchanges and swap execution facilities and cleared at clearinghouses," Peterson wrote.

“And like futures customers, swap counterparties are wondering what protections they will have available to them with regard to the funds or other property they provide to margin, guarantee, or secure their obligations in the trading and clearing of swaps.”

He noted that the swaps market is “vastly larger than the regulated futures market.”

“As the Dodd-Frank Act will lead to more swaps being cleared, and consequently more collateral or margin being posted for those swaps, it is critically important that protections are in place to ensure that counterparty collateral or margin will not become lost or tied up in the event of a dealer bankruptcy,” Peterson said.

“If our current segregation model for futures could not protect customer funds with regard to MF Global, how can we expect it to protect counterparty collateral for the significantly larger swaps market in the event of another large dealer bankruptcy? “

“Without sufficient protections in place, confidence in the Dodd-Frank Act’s system of swap clearing will be undermined before it gets started,” Peterson concluded.

Rep. Peterson letter to CFTC