CFTC Approves Rule To Let Trustees Operate Futures Brokerages In Bankruptcy

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

Refco (NYSE:RFX)
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