New rule adopted to protect the consumers’ funds following the crash of MF global

A newly adopted federal rule sets tighter restrictions on the U.S trading firms in relation to investing the money of the customers. The Commodity Futures Trading Commission voted to adopt the rule. This particular rule states to prohibit the trading firms from using the money from the account of their customers for some specific investments, which also includes foreign debt purchase. Alongside limiting their investment options, the rule also limits the amount of money that can be used for other investments like, market mutual funds.

However, alongside limiting their investment options, the rule also offers the trading firms the freedom to appeal to the agency for exemption to the particular restriction. The agency though had initiated the proposal of the rule a year ago was held off from adopting until last month following an opposition from Jon Corzine, the chairman and CEO of MF Global and some others. MF Global however, filed for Bankruptcy Protection on October 31 following a bet on the debt of European Government. The effect of the bet did not have much pleasing result, as around $1.2 billion went missing from the account of their customers.

Corzine who was a New Jersey governor, former Democratic senator, and CEO of Goldman Sachs has put down papers as the CEO and Chairman of MF Global dated November 4. The House Agricultural Committee has sent a written order to Corzine to attend court for testing his role in MF Global. Two other panels are also expected to send Corzine the written notice about attending court. The Commodity Futures Trading Commission is investigating on the concerns of whether MF Global using the funds of the client to cater to its own needs since, its financial condition worsened with time.

Small business owners, farmers, and ranchers have claimed their money deposited with MF Global to be lost. An increasing number of investors use the futures market to evade several risks that might come their way. The newly adopted rule also restricts the firms from conducting the practice of borrowing from their customers alongside putting an end to the financial transaction that refers to purchasing agreements between the same firm and the affiliates. Firms however, are open to continuing their practice of investing money in certificates of deposits, municipal bonds, and U.S Treasury securities.

The rule is about to take effect within 60 days and the firms will be given an estimated six months to comply by the rule.