CFTC Approves Rule To Let Trustees Operate Futures Brokerages In Bankruptcy
July 29 2010 - 11:44AM
Dow Jones News
Trustees handling commodity brokerage bankruptcies will now be
allowed in some cases to continue operating the business so that
customers' trading isn't disrupted, federal futures regulators
announced Wednesday.
The Commodity Futures Trading Commission's new rule, which was
proposed late last year, would give the agency discretion to decide
when to let a bankruptcy trustee continue buying and selling
futures contracts on behalf of customers of the failed
brokerage.
Currently, trustees are generally not allowed to immediately
start processing trades for customers when they begin bankruptcy
cases.
The CFTC said the rule is needed because bankruptcies can be
filed when the markets are open, and it can take time to get a
trustee in place to begin transferring customers' accounts
elsewhere.
"The adoption of the rule would benefit customers of a commodity
broker in bankruptcy, under appropriate circumstances, by
permitting those customers to manage their accounts during this
time," the CFTC said in a filing in the Federal Register. "The
adoption of the rule would also provide the commission with the
latitude to handle unanticipated events."
The CFTC's rule follows several big bankruptcies in recent
years, including Lehman Brothers (LEHMQ) in 2008 and the brokerage
firm Refco Inc. (RFX) in 2005. In those cases, customers were lucky
because agreements to transfer their accounts to other firms were
pre-arranged and the deals were finalized without any trading
disruptions.
The new bankruptcy rule will go into effect in 30 days.
-By Sarah N. Lynch, Dow Jones Newswires; 202 862 6634;
sarah.lynch@dowjones.com
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